In India, property and investments often move within close family circles. A house in a spouse’s name, shares held for a parent, or land purchased in a relative’s name are common. Yet, the law draws a clear line between genuine arrangements and those meant to conceal real ownership. Understanding that line is now crucial.
The recent Supreme Court ruling has again brought the Prohibition of Benami Property Transactions Act into focus, especially on how far it can reach into past transactions. The takeaway for investors is simple: knowing what’s allowed and what carries risk is a must.
What is a ‘benami’ transaction?
A benami transaction is one where an asset is held in one person’s name but paid for by another, with the true ownership intentionally concealed. This is not limited to real estate. It extends to shares, mutual funds, bonds and even bank deposits. If a person buys land in a friend’s name, invests in shares and mutual funds through another’s identity to avoid scrutiny, or parks money in someone else’s account while retaining control, such arrangements may fall within the benami framework. The person in whose name the asset stands is the ‘benamidar’, while the real owner remains hidden.
Genuine family arrangements valid
The law recognises that not all such arrangements are improper. Indian families often manage assets collectively, and the law accommodates this through clear exceptions.
Property purchased in the name of a spouse or child is usually permitted even if funded by oneself, provided the money comes from known and explained sources. Joint ownership is not required in such cases. However, where property is bought in the name of siblings, parents, or lineal ascendants and descendants, joint ownership becomes necessary, along with the requirement that the funds be explained. Assets held in fiduciary capacity—such as by trustees, partners or company directors on behalf of their respective trusts, firms, or companies— are excluded too. The law seeks to distinguish genuine family or fiduciary arrangements from those intended to conceal ownership.
Why 1988 Act had limited impact
India enacted its first benami law in 1988, barring such transactions and imposing a key restriction: a person entering into a benami arrangement couldn’t later move the court to claim ownership. The law refused to aid such ‘real’ owners, but remained weak in practice. Though it provided for the acquisition of benami properties by the government, the machinery to implement this was never effectively operationalised. As a result, while the real owner could not enforce claims, the State also rarely stepped in. Many such arrangements, therefore, continued without serious consequences.
What changed in 2016
The 2016 amendment fundamentally transformed the 1988 law, with the definition of benami transactions widened to include layered and indirect arrangements. It also covered assets purchased from the proceeds of benami property. A full enforcement framework was introduced, empowering authorities to investigate, attach and adjudicate cases. Most importantly, the law now provides for the confiscation of benami properties.
The shift was clear. The law moved from a passive prohibition to an active enforcement regime. It is no longer just about denying claims. It now enables the State to seize and confiscate such assets and punish the defaulters with imprisonment for up to seven years.
SC case: A cautionary outcome
The recent Supreme Court ruling in ‘Manjula v. Srinivas’ illustrates this shift. In that dispute, one party claimed to be the real owner, asserting that although the property stood in another’s name, the funds had come from the former. The opposing side argued that if that were so, the transaction itself was benami and therefore no claim could be enforced.
Under the earlier law, this argument might have simply defeated the ownership claim. But the apex court went further: it applied the stronger 2016 framework retrospectively and directed the confiscation of the property. The result was striking. The alleged real owner could not enforce their claim. At the same time, the benamidar also did not retain the property. In effect, neither side succeeded.
What is ‘benami’ and what isn’t
