Benami purchases are purchases in false name of another person, who does not pay the consideration but merely lends his name, while the real title vests in another person who actually purchased the property and he is the beneficial owner. Benami transactions used to take place to evade law of perpetuity, because of parda system, to avoid annoyance, Zamindar’s desire to avoid indignity and legal disability, mysterious desire etc.

Benami transactions were noticed as early as the year 1778 in Mr. Justice Hyde’s notes after the establishment of British rule in India. In 1854 the committee on a review of cases in Gopeekrist Gosain Vs. Gungapersuad, (1854) 6 MLA 53, held that benami transaction is a custom of the country and must be recognized till otherwise ordered by law. In 1882 sections 81 and 82 of Indian Trusts Act gave legislative recognition to the practice of benami transactions and the courts were bound to enforce it.

Such benami transactions abused and defrauded public revenues and creditors. The Parliament for the first time intervened in 1976 when it introduced section 281A in the Income-tax Act, 1961 barring the institution of suit in relation to benami properties. But this too did not stop benami transactions and its consequences, this time the Parliament totally prohibited the benami transactions and made it an offence also, prohibiting all suits, claims and actions based upon benami transaction. The Parliament also in order to stop the abuse and fraud by the benami transaction property without compensation repealed section 82 of Indian Trusts Act and section 281A of the Income tax Act alongwith other consequential repeal. The Law Commission was requested to examine the subject on benami transactions in all its ramifications. The Law Commission submitted its 57^th Report. To implement the recommendations of the Law Commission President promulgated the Benami Transaction (Prohibition of the Right to Recover Property) Ordinance, 1988 on 19^th May, 1988 by which it barred all suits and defences based upon benami transactions. This Ordinance was converted into an Act by introduction of a Bill in the Parliament.

STATEMENT OF OBJECTS AND REASONS
 
(1) To implement the recommendations of the Fifty-seventh Report of the Law Commission in Benami Transactions, the President promulgated the Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988, on the 19^th May, 1988.

(2) The Ordinance provided that no suit, claim or action to enforce any right in respect of any property held benami shall lie and no defence based on any right in respect of any property held benami shall be allowed in any suit, claim or action. It however, made two exceptions regarding property held by a coparcener in a Hindu undivided family for the benefit of the Coparceners and property held by a trustee or other person standing in a fiduciary capacity for the benefit of another person. It also repealed section 82 of the Indian Trusts Act, 1882, section 66 of the Code of Civil Procedure and section 281A of the Income-tax Act, 1961.

(3) The provisions of the Ordinance received a mixed response from the press and the public. There had been criticism also that the Ordinance was a half-hearted measure and had not tackled the problem effectively and completely. It was, therefore, felt that the Bill to replace the Ordinance may be brought out as a comprehensive law on benami transactions touching all aspects and accordingly, the Law Commission was requested to examine the subject in all its ramifications. The Law Commission has submitted its 130^th Report titled "Benami Transactions – a Continuum" and has made certain recommendations.

(4) The Law Commission has, inter alia, recommended the inclusion of the following provisions in the Bill to replace the Ordinance, namely: -
 
(i) benami transactions should cover all kinds of property;

(ii) entering into a benami transaction after the commencement of the new law should be declared as an offence. However, an exception should be made for transactions entered into by the husband or father for the transfer of properties in the name of the wife or unmarried daughter for their benefit. By this, the doctrine of advancement as obtaining in the English law will be incorporated into the Indian Statute Book;

(iii) Voluntary organisations should be authorised to file complaints about the entering into of benami transaction and the District Judges should be designated as Tribunals. Even Gram Nayalayas recommended by the Law Commission may also be utilised for this purpose;

(iv) as both the benamidar and the true owner are equal participants to a criminal transaction, by prohibiting the true owner’s right to recover property held benami as provided in the Ordinance will be provided for an undue enrichment to the benamidar. As such, the Commission has suggested that the properties should be acquired form him by resorting to a procedure analogous to Chapter XXA of the Income-tax Act, 1961.It has been suggested that the same action has to be taken when a benamidar retransfers the property back to the true owner for an apparent or no consideration to circumvent the provisions of the Ordinance;

(v) in addition to section 82 of the Indian Trusts Act, 1882, as provided in the Ordinance, sections 81 and 94 of that Act should also be omitted;

(vi) appointment of an authority, like the Charity Commissioner, for supervising private trusts should be provided for.
 
(5) The recommendations of the Law commission have been examined. It is felt that all the recommendations of the Law Commission , except the recommendation regarding authorising voluntary organisations to file complaints before Tribunals and the appointment of an authority , like the Charity Commissioner, for supervising private trusts, may be specifically provided in the Bill, and the other two recommendations would, it is felt, come into effect automatically as a result of the prohibition of benami transactions and the provision for acquisition of all properties held benami. The Bill accordingly provides for the following, among other things, namely: -

(a) entering into benami transactions after the commencement of the new law will be an offence, with an exception for the transfer of properties by the husband or father for the benefit of the wife or unmarried daughters;

(b) all the properties held benami will be subject to acquisition by such authority, in such manner and after following such procedure, as may be prescribed by rules under the proposed legislation. As a result of the provisions of the Ordinance and the prohibition of entering into benami transactions, the benamidar would be acquiring the rights to the property by the mere lending of his name and without investing any money for the purchase of such property. Accordingly, it is provided that no amount shall be payable for the acquisition of any property held benami:

(c) Sections 81 and 94 of the Indian Trusts Act, 1882, shall also be repealed.
 
(6) The Bill seeks to achieve the above object.

Act 45 of 1988

The Bill was passed by both the Houses of Parliament and it received the assent of the President of 5^th September 1988 and became the Benami transaction (Prohibition) Act, 1988 (45 of 1988).