Significance of Issuing Notice in Benami Property Transactions

Right to property may not be included in the fundamental rights under the Constitution of India, however, it still remains a valuable constitutional right under Article 300-A of the Constitution of India which provides that no person shall be deprived of his property save by authority of law. Even the Supreme Court of India has reiterated this position in the case of Basnett D through LRs vs. The Collector.

Section 27(2) of The Prohibition of Benami Property Transactions Act, 1988 (PBPT) correspond to such right of an individual. Section 27(2) of PBPT provides that nothing in sub section (1) shall apply to a property held or acquired by a person from the benamidar for adequate consideration, prior to the issue of notice under sub-section (1) of section 24 without having his knowledge of the benami transaction. Meaning thereby, no confiscation with respect to a property will take place under Section 27(1) of PBPT if the following conditions are satisfied:

1. Property is held or acquired by a person (interested party) from the benamidar.
2. The said property is acquired for adequate consideration.
3. The said property is held by such person prior to the issue of notice under sub-section (1) of section 24.
4. The said property is held by such person without having his knowledge of the benami transaction.

Section 24 of PBPT provides for Notice and attachment of property involved in benami transaction. Section 24(3) of PBPT provides for provisional attachment of the property for a period not exceeding ninety days from the date of issuance of notice under sub section (1). The mandatory prerequisites to be fulfilled before making attachment of a property under section 24(3) of The Prohibition of Benami Property Transaction Act, 1988[1] are as follows:

1. The Investing Officer must know that who is the person currently holding the property in possession.
2. If the said person is not holding the property as benami, further steps are meaningless.
3. The said person is likely to alienate the subject property in due course by disposing of.
4. The alienation is likely to happen within the period specified in the notice issued u/s. 24(1).

Now, if it is found through investigation by the Investing Officer that the conditions of Section 27(2) are fulfilled and that no confiscation can take place under Section 27(1), it can be said that the said purchase made by him is bona fide.

After satisfaction of compliance of the above mandatory prerequisites of section 24(3) of PBPT and to meet the principle of natural justice, the Investing Officer is obliged to issue notice to the said person who is currently holding the property in possession. In the case of Kavita Infrastructure Pvt. Ltd. vs. The Initiating Officer, Mumbai, the Hon’ble Appellate Tribunal for Benami Transactions observed that the provisions of the PBPT provide ample powers to the Initiating Officer to enquire and investigate about the property. The officer is duty bound to comply the provision with due diligence. No discretion is left if the provision is read in meaningful manner. Passing the provisional attachment order under section 24(3) of the PBPT Act without informing the person holding the property in possession would amount to infringing the constitution rights of such person.

The issue of serving notice u/s. 24(1) to the interested party has been well settled in the order of the Hon’ble Appellate Tribunal for Benami as passed in the case of “M/s. Virgo Buildestate Pvt. Ltd. vs. Initiating Officer FPA PBPT285/JP/2019” wherein it was stated that “It would have been fair and legal on part of the respondent to have noticed the appellant under Section 24(1) before taking a decision under Section 24(4)(a) because at the stage of 24(1) the appellant had already acquired certain legal rights by stepping into the shoe of alleged benamidar”.

Furthermore, in the said case, the Hon’ble Appellate Tribunal has also observed that the general rule of law is that the burden of proof lies on the person who alleges. Therefore, it is well-established that the burden of proof is on the Investigating Officer at the initial stage to establish with cogent evidence that the purchase by such person who is in possession of the alleged benami property is not bona-fide.

Conclusion

When the conditions of Section 27(2) of the PBPT are fulfilled after the investigation of the Investigating Officer under Section 24 and it is clear that the alleged benami property is held or acquired by a person other than the benamidar, the Investing Officer is obliged to issue notice to the said person who is currently holding the property in possession. Non-issuance of notice to such person may amount to infringement of the constitutional right to property.

The Judgment can be accessed from:

http://atfp.gov.in/writereaddata/upload//Judgement/Judgement_HO3EJT2ID0_917201914621PM.PDF

References :

[1] Kavita Infrastructure Pvt. Ltd. vs. The Initiating Officer, Mumbai: FPA-PBPT-820/MUM/2019