Approver Under Benami Law: To Be, Or Not To Be?

A person, who does not gain anything from the crime or who was misled to become an accomplice, may be tempted to become prosecution witness/approver to avoid being prosecuted along with the main culprits.

Recently, the Finance Act, 2024 has introduced this concept of approver under the Prohibition of Benami Property Transactions Act, 1988 ('Benami Law'). It is essential to discuss the scope of this amendment and the impact that it may have on Benami cases and various stakeholders going forward.

Brief history of Benami law in India

In typical benami transactions, the real culprit is the beneficial owner, i.e. the person who has paid the consideration for the property and has been enjoying benefits from the property held in someone else name (name-lender/benamidar). The name lender may have consented to holding property in his name for some meagre monetary gains or simply due to influence or coercion employed by the beneficial owner. Benami transactions may be resorted to by parties for a variety of ulterior motives like tax evasion, defrauding of creditors, circumvention of regulatory laws, etc.

To curb the benami transactions, the parliament had enacted the Benami Law and provided for punishment of persons involved in benami transaction as well as confiscation of the benami properties. However, due to absence of provisions to enforce the law, the attachment and confiscation actions could not be initiated. In 2016, the parliament amended the Benami Law and brought several substantive and procedural changes to give it the teeth to bite. The amendment also introduced provisions for penalizing and punishing persons involved in benami transaction i.e. beneficial owner and benamidar as well as any other person abetting or assisting the benami transaction.

While investigating and prosecuting benami cases, the income tax authorities often find it difficult to decipher the real transaction hidden behind the façade due to lack of documentary evidence and general secrecy surrounding such transactions. In certain cases, investigating authorities also find it difficult to identify the beneficial owners and the full extent of properties involved in the transactions. Absence of clinching evidence has often allowed the culprits to escape conviction in criminal proceedings.

Immunity to approver under Benami Law

To overcome these difficulties and prosecute the real culprits, the parliament has introduced provisions in the Benami Law by Finance Act, 2024 to grant immunity to the Benamidar or any other person who assists or abets the benami transactions (“Approver”) if they make a true and full disclosure of the benami transaction.

The Approver would be given an immunity from prosecution if he/she discloses all the details to the Initiating Officer relating to a benami transaction. The intent behind this is to ensure collection of prosecutable evidence/details about benami properties which would result in convictions of the beneficial owners, other accused. Further, such an immunity would also offer protection to poor, illiterate and gullible benamidars, who might have become party to a benami transactions without being aware of possible ramifications.

The Initiating Officer before tendering an immunity is required to obtain a previous sanction for the same from the competent authority which is commissioner of income-tax. Once the tender of immunity is made and accepted by the Approver, the said immunity would render the Approver immune from prosecution and penalty under Benami Law.

Lack of clarity/ details about timing and process

While the amendment contains substantive provisions empowering the Initiating Officer to grant immunity with sanction of the competent authority, the process and timelines for granting immunity has not been provided in the provisions. Therefore, the question that arises at this juncture is, whether the formal accusation of a person as benamidar/abettor/assistant under the Benami Law is a pre-requisite for him to turn Approver. Can a person come forward and make disclosure at any stage, including prior to initiation of investigation or any proceedings?

Further, it is not clear as to whether the Initiating Officer will tender and grant immunity to the Approver before or after the full and true disclosure relating to the benami transaction is made by the Approver. The provisions also do not throw light on how the Initiating Officer will satisfy himself that what has been disclosed by the benamidar is full and true disclosure.

Moreover, there is no specified timelines for granting of certificate of immunity from the date of disclosure. The authors are of the view that a clarification in this regard may be required to bring more certainty for the application of the said provisions.

False information or concealment of information: Withdrawal of immunity

If the Initiating Officer finds that any person to whom immunity has been tendered has wilfully concealed any information or provided false information, the Initiating Officer may record a finding to that effect and withdraw the immunity tendered with the previous sanction of the competent authority. The provision seems to confer wide powers on the officer to withdraw the immunity at any stage. The effect of such a withdrawal could expose the Approver to penalties and prosecution for entering into or abetting or assisting in the benami transaction. Additionally, the Approver could also be prosecuted for furnishing any false information or false document. It is essential to note that the said provision does not contain any provision to provide an opportunity to the Approver to desist or challenge the withdrawal of the immunity by way of appeal or otherwise.

Admissibility of the evidence gathered from the Approver

While statement of the Approver cannot be the sole basis to make out a case, the same must also be corroborated by independent evidence. The burden of proof will be on the prosecution to establish their case. Also, the beneficial owner may seek cross examination of the Approver at appropriate stage of the proceedings.

The provisions are silent about admissibility of statements/ evidence given by an Approver, whose immunity has been subsequently withdrawn. This question gains even more significance considering the fact such statements and evidence given by an Approver based on an assurance of immunity, may eventually be used to penalize and convict the very same Approver due to withdrawal of immunity.

The amendment in the Benami Law is a pathbreaking amendment and will mitigate the hardships faced by the officers in taking complex benami investigations to its logical conclusions. It will also provide an opportunity to innocent Benamidars and other persons to come forward and disclose the information and escape penalties and prosecution. However, there is a need for providing the procedure and timelines for granting immunity and withdrawal of immunity in order to bring clarity and certainty. Further, it is not clear whether the provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023 (erstwhile Criminal Procedure Code, 1973) will apply to granting of immunity under Benami Law. - Till further clarity is provided, a question mark may remain over the effectiveness of this scheme and potential Approvers may feel insecure about coming forward.

Authors: S. Vasudevan (Executive Partner), Abhinov Vaidyanathan (Principal Associate) and Kanishka Sihare, Associate at Laksmikumaran and Shridharan Attorneys. Views are personal.