What is benami transaction?Benami Transactions (Prohibition) Act, 1988 is an Act of the Parliament of Indiathat prohibits certain types of financial transactions. The actdefines a ‘benami’ transaction as any transaction in which property istransferred to one person for a consideration paid by another person.In other termsbenami property implies the property which has bought in the name of someindividual other than the individual who has financed it. The individual whohas rendered the required cash for the said property has not purchased it inhis name however had done so in some different person’s name. Retrospective and Prospective lawIn simple words ‘Retrospective’ is normally connectedto those acts of the assembly, which are made to work upon some subject,contract and so on which existed before the section of the act, and they arealong these lines called review laws. Hence, a retrospective law is one that isto produce results, in purpose of time, before it was passed. Similarly, aProspective Law is the one which accommodates, and manages the future acts ofmen, and does not meddle at all with what has pastRecent Developments in Benami Act, 1988 Paralleleconomy has been growing in India for a long duration of time.

It is expected tobe 1.4 trillion dollars which is equivalent to Rs 70 lakh crores. This is muchmore than the national income which is approximately Rs 50 lakh Crore.Keeping in mindthe end goal to check the collection of black money in the nation, ModiGovernment has made a noteworthy stride by demonetizing the higher currencynotes from the course.

It isn’t the main advance which has been taken by theGovernment in such manner, as Benami Transaction Amendment Act, 2016 has additionallybeen passed. This amendment will come into effect from 1st Novemberkeeping in mind the end goal to cut the stream of black money from the estatemarket. The double move taken by the Government was to make sure that thelegalized money should be available for circulation and illegalize all type ofmoney collection.  The Benami Transactions (Prohibition) AmendmentAct, 2016 was passed by both the houses of the parliament and became effectivefrom 1st November 2016. It is fascinating to take note that theparent act of 1988 had just 9 sections while the new amendment of 2016 has 71segments which is approximately 8 times more than the past actAccording to Justice Vibhu Bakhru inan interview with Times of India, on 11th October, 2017 the newlyamended benami law will huge ramifications on the society. According to him theincome tax department viewed it in such a manner to give it retrospectiveeffect from 1988, when this legislature was passed for the first time. Thiswould lead to opening of 20-30-year-old cases out which some have been moved allthe way up to Supreme Court of India.The 2016 benami transaction (prohibition) act hasdefined ‘Benami property’ as any property which is the subject matter of aBenami transaction and also includes the proceeds from such property.

The major amendments that have brought intoplace that distinguishes it its from its parent act are as follows:    Benami Transaction Act ,1988 Benami Transaction Amendment Act,2016 1) According to the 1988 act the property bought for the benefit of wife or unmarried daughter cannot fall under the scope of the act 1) According to the 2016 Amendment act, additional clauses have been made in order to enlarge the scope of the definition 2) Regularity mechanisms were absent in the 1988 act 2) Regularity mechanisms have been put in place. According to this four authorities namely Initiating officer, Approving Authority, Administrator and Adjudicating Authority will be appointed in order to ensure that the proper steps are being taken against the impugned property.  Need for Amendment Act, 2016  Propertyprices in India moved to an all-time high during the UPA 2 rule 2008-2013 whencorruption and black money reportedly peaked in India. The NHB Residex (2007-100)of global property prices (graph 1) show the doubling of property prices duringthe five-year period and a marginal decline after the new Government came topower in 2014. The unsold inventory of high end properties in the top 3 cities(Delhi NCR, Mumbai and Bengaluru) rose by 4% to nearly 5 lakh homes in 2015.

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Still prices have not declined because the builders are holding on to unsoldassets with the hope that the unspent black money that is still rampant in theecosystem will mop up the exorbitantly high properties once the dust and dinabout income declaration settles down.Graph1-NHB Residex of globalproperty pricesImplementation of Benami Transaction AmendmentAct,2016  Impact of Benami transaction Amendment acton the marketBenami transaction Amendment act, 2016 waslaunched with a three-fold objective that is to amend the definition of benami transactions,establishing control and reporting authorities and specifying the penalty forthose entering into benami transactions.Benami Transaction become the center piece of theart which involved other legislature such as he Real Estate (Regulation and Development) Actand the Land Acquisition Rehabilitation and Resettlement (Amendment) Bill 2015.This led to increased transparency and professionalism in the industry.The motive of the benami act was that by addingcorrect name to the property being bought will not only bring transparency inthe residential market but with increased transparency, the title risks willreduce which will thereby boost the buyer’s confidence.

With increased transparency and less corruption,the money circulation will enhance which will lower the costs of residentialmarket and thereby increase the spending power of the customer’s. This in-turnwould have positive effect on the economy in the long run.LendersConfidence- Lendersconfidence that is either banks or private equity will see a boost in their confidenceto loan out to the property. In the event of wrong or unclear titles, thelending financial institutions conduct its own research on a property beforeapproving the loan. This is most likely to affect those with multipleownerships, false ownership as well as those unknown ownership players in themarket who play with the residential sectors especially in small scale metrosand non-metropolitan marketsLandtransactions-The quantity of benami exchanges in the land is substantialand it is anticipated that the change will have a positive effect, here. Landexchanges in India, take a normal of 1-2 years for consummation. With the byand large buy of land no longer suitable, most developers are selecting joint endeavours.

After various discourses on income sharing and translations of reasonable FSI,it is regularly discovered that the land title itself isn’t clear. With the newchanges, ideally, lucidity on titles will improve over the period of time. Thiswill help designers, to finish up joint venture exchanges on land rapidly andopen up bundles of land parcels which will eventually lead to residentialdevelopment.

Exits on the basis of fund transactions will be quicker.Supply of Residentialunits- Benamitransaction amendment act will have a huge impact on the supply of residential units.According to the amended bill, it seeks out to establish four major authoritiesand the bill gives the competent authority the right to acquire such propertieswithout paying any consideration. For thepurpose of smooth implementation, control and monitoring, the bill has defineda hierarchical structure with different responsibilities which are as follows: Authority Functions & Responsibilities Initiating Officer Notice and attachment of the accused benami property Approving Authority Notice to extract out evidence Adjudicating Authority Confiscation & vesting of property Administrator Possession and Management of Properties confiscated Appellate Tribunal Hear appeals against the orders of Adjudicating Authority  On thebasis of the structure, a lot of power lies in the hand of an initiatingofficer in order to declare a person benamidar. He may issue a notice to thesaid benamidar person and seize his property for the next 90 days from the dateof notice, subject to the permission from the approving authority.All theappointed authorities will have to work in synchronization in order toestablish a property as benami property.

Also, lesser number of people involvedin the process will ensure that no foul play is being played and it would bemuch easier to track if any. Secondly the confiscated property will either beauctioned or will be used by government.On thebasis of these the overall supply in the residential market will be minimal.Impact on pricing-Rich investors, whoseek to allocate their unaccounted wealth, usually undertake part in benamitransactions in real estate, to dodge tax authorities and have a better returnon investmentsWith such investors,be pushed out of the market, in this manner, prompting a more end-client drivenmarket. It is anticipated that there will be any real effect on residentialcosts. End-client demand is already present in the market coupled with decliningnumber of active investors from this sector.

Prices have stayed firm wherepurchasers have lived up to their price desires. The sector has seen anexpansion in private equity funding, for well-established developers andinvestors and this pattern is probably going to proceed in the future as well.Small scale playersor small investors are probably the ones who would be hit hard with this amendmentas these small players receive a huge load of money from big investors duringconstruction. With few big clan investors in the market, small scale playerswill have hard time for funding of their project.Impact on Society-Stringent PenaltyThe Act lays down stringent measures to discourage Benamitransactions. The re- transfer of the Benami Property is prohibited under theact and there is defined punishment for commencing any Benami Transaction afterthe date of commencement of the Bill which includes. For guilty of offence of a Benami transaction › Penalty up to 25% of the fair market valueof the property › Rigorous imprisonment for minimum 1year up-to 7 years For false information › Penalty upto 10% of the fair marketvalue of the property › Rigorous imprisonment for minimum 6months upto 5 years   Overview on the impact on real estate marketThis act would be applicable on any kind of assets movable,immovable, tangible, intangible, corporeal or incorporeal. It also includes anyright or interest or legal documents or instruments evidencing title to orinterest in the property; where the property is capable of conversion into someother form, then the property in the converted form; and the proceeds from theproperty.

The act is expected to adversely impact transaction volumes and lowerproperty prices. The act will ensure that all real estate transactions shall bein the name of actual owneri.e actual person paying the consideration from her/his knownsources. One of the major problem in real estate transactions is clarity oftitle which limits investor as well as financial Institution participation inthe sector. Transparency issue is one of the negative factor which limits theprivate equity and NBFCs.Conclusion The amendment in the act is a means to reduce generation andutilization of unaccounted (black) money. This was a pivotal election promisemade by the current government.

Through this amendment the government seeks toclearly define ‚Benami transactions, establish adjudicating authorities and anAppellate Tribunal to deal with Benami transactions, and specifies the penaltyfor entering into Benami transactions. Moreover, this will also increase thetax revenue for the Government by curbing unaccounted money into the system.Along with other regulatory changes such as implementation of Goods andServices Act (GST), Real Estate (Regulation & Development) Act (RERA) andLand Digitization, this amendment is a step in the right direction in improvingtransparency in real estate transactions.

In the short term it will lead to areduction in transaction volumes. However, in the long term it will make Indiaa more attractive investment destination, aligning transactions with ethicalstandards and will increase international institutional investors and financialinstitution’s participation in this sector.