Is your property now under the Benami Act’s scrutiny?

Property ownership in India has long operated through diverse arrangements where legal and beneficial ownership do not coincide . In both family and commercial settings, it was common for one person to finance the acquisition of property while another held legal title. Such transactions mostly related to agricultural land due to statutory restrictions on ownership and transfer, while business assets were often held through trusted associates, employees, or directors for convenience or regulatory structuring. For many years, such arrangements existed without any immediate perception of illegality.

That legal position, however, has changed substantially. Although the Prohibition of Benami Property Transactions Act, 1988 (the “Act”) existed for decades, the Benami Transactions (Prohibition) Amendment Act, 2016 (“2016 Amendment”) significantly strengthened the statutory framework by introducing a detailed mechanism for attachment, adjudication, confiscation, and prosecution with respect to such properties. The recent judgment of the Supreme Court in Manjula v. DA Srinivas reflects the judiciary’s increasingly strict approach towards such transactions.

The dispute before the Supreme Court arose out of a suit in which the respondent-plaintiff claimed ownership over certain agricultural properties on the basis of a Will allegedly executed in his favour. According to the plaintiff’s own pleadings, the properties were originally purchased using his funds but registered in his employee’s name because he himself was allegedly ineligible to purchase them directly due to statutory restrictions. The defendants in the original suit therefore, contended that the suit was, in substance, an attempt to enforce a benami arrangement prohibited under the Act. It was further argued that the plaintiff could not rely upon the fiduciary relationship exception merely on the basis of an employer-employee relationship between the parties.

The Supreme Court reiterated that, even at the stage of entertaining a suit, courts are not required to mechanically accept the form in which a claim is drafted but must examine the true substance of the transaction pleaded. A claim framed through succession, testamentary transfer, or declaratory relief cannot avoid scrutiny if the underlying arrangement itself discloses the characteristics of a benami transaction.

Furthermore, the Court clarified that the fiduciary relationship exception under Section 2(9)(A)(ii) of the Act is confined to legally recognised categories such as trustees, executors, partners, and company directors, and that an ordinary employer-employee relationship does not qualify merely because the parties shared trust or confidence. This aspect of the judgment is likely to have wider significance, particularly for informal nominee structures based on longstanding personal or commercial relationships rather than formally documented fiduciary obligations.

One of the most significant aspects of the judgment concerns the retrospective or retroactive operation of the 2016 Amendment. In the present case, the properties in question had been purchased in 2006 and 2011, well before the amended framework came into force. Nevertheless, the Court held that the 2016 Amendment operate retrospectively or retroactively. The Court reasoned that the prohibition against benami transactions already existed under the original 1988 enactment, whereas the 2016 Amendment only introduced a workable enforcement mechanism relating to attachment, adjudication, confiscation, and appeals and these provisions are procedural and regulatory in nature. In any case, confiscation under the Act constitutes a civil consequence and does not amount to criminal punishment, therefore, it can operate retrospectively, whereas penal provisions creating new offences or enhancing punishment would continue to operate only prospectively.

The practical implication of this finding is significant for individuals and businesses continuing to hold property through historical nominee arrangements. The judgment suggests that older transactions may still face scrutiny under the present statutory framework when disputes arise or rights are enforced. In the present case, the Court ultimately held that the suit properties were liable to be confiscated under Section 27 of the Act once the transaction was found to be benami, with neither side ultimately being entitled to claim right over the property in dispute.

The judgment does not imply that every historical arrangement involving differing sources of consideration and title automatically becomes unlawful since much would still depend upon the facts of each case, the surrounding documentation, the nature of the relationship between the parties, and the availability of any recognised statutory exception. However, the decision does underscore that legacy property structures built upon informal understandings rather than legally documented arrangements are now likely to face considerably greater scrutiny.

About the author: Yogendra Aldak is an Executive Partner, Rashi Srivastava is a Principal Associate and Shanelle Umarwadia is an Associate at Lakshmikumaran & Sridharan attorneys.

Disclaimer: The opinions expressed in this article are those of the author. The opinions presented do not necessarily reflect the views of Bar & Bench.

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