MOTIVES FOR BENAMI PROPERTIES AND POLITICO-ECONOMIC INTERESTS OF STATE

By
SHEIKH KHURRAM ABBAS
Advocate High Court

Ever Since the emergence of modern state system, no law is made or allowed to remain in force that conflicts directly or indirectly with the legitimate interests of state. For now, though not in distant past, states are regarded as guardians of the collective interests of the whole society they respectively bear. Accordingly, even a custom, being a primitive and still a well-recognized source of law, is not permitted to stand, on the touchstone of reasonability1, against public policy2 and general interests of society.

Unfortunately, in Pakistan several customs, which have lost their very reasons and are now manifestly opposed to the economic as well as political interests of the state, are still accorded all-out legal efficacy; one of those customs is that of holding "benami properties".

This Article is an attempt to first explain the concept of benami immoveable property, the chief motives responsible for its origin and continuation, and then to shed light on its relevance to, and implications on, the politico-economic interests of Pakistan.

The term benami is of Persian origin made up of two words "be" and "nam" meaning "no name". It etymologically means "without name", fictitious or ostensible. In legal parlance, where a sale is effected in the name of someone other than the actual purchaser who does not desire to put in his own name but buys it in the name of someone else, the transaction is called benami3. As for instance, A sells property to B but the sale deed mentions X as the purchaser4. The purchaser mentioned in the sale deed is only an ostensible owner called benamidar, and the real owner is the person who actually advanced money4a but for some reasons did not disclose his own name5.

It is now quite conveniently deducible from the above that benamidar's name is a mere mask or just an alias for that of the person who actually supplied the money for purchase; that the benamidar only represents another as owner of property6; and that he has merely an indicia of ownership of the property7.

This kind of ownership finds it legal recognition in a number of Laws in Pakistan, However, the word benami, though a familiar figure in the judicial sphere, has no mentioning as such in any statutory provision. Following is an account of the relevant laws and legal protections available to a real owner against a benamidar or against rest of other members of society:

1. He can get the transfer of property by benamidar declared null and void through Court of Law alleging that benamidar has effected the transfer without obtaining his consent. This right of real owner is enshrined in Section 41 of the Transfer of Property Act, 1882;

2. There is a presumption of Law that the person in whose favor the sale, as disclosed by the deed, was effected is the real owner. But the real owner can rebut this presumption by the proof that the sale was with funds of the real owner or for the benefit of the real owner. The real owner can do so by getting himself declared under Section 42 of the Specific Relief Act, 1887 as true and real owner, and can take the property back to his own name.

3. He can enforce the rights of beneficiary or an author of trust against benamidar by getting declared as trustee8 under Section 82 of the Trusts Act, 1882, on the basis of "Constructive" or "Resulting Trust".

Like other customs of legal efficacy, benami is, too, of ancient origin. But it may be surprising to note that this system of holding or purchasing properties is peculiar only to India. Its rudimentary form can be traced back to Vedic period of Hindu Society which is famous for its aggressive patriarchal family structure. The eldest male in living ascendants, called Grihpati, was the ruler and master of the household. In such a condition the whole property of family by whosoever acquired stood in his name. This accounts for the present day practice of joint Hindu-family that the property is purchased in the name of the eldest or managing member of the family in whose name the conveyance is taken, but for the benefit of all, and the property so conveyed is supposed to be belonging to the whole family. In case of partition, the property standing in the name of one or the other members is also included9.

It is however important to mention that the practice of acquiring properties in the name of others was adopted by Muslims from Hindus, and the expression "Ism Farzi" was used to denote the same10.

Another factor responsible for growth of benami was fear of hostile conquest or confiscation of property from the strong hands of despotic princes and adventurers11, probably before ninetieth century. A possible example is that of tarafdars of Chittagong. Owners of small plots of land who had acquired a title to them by first clearing a jungle thereon and making the land fit for cultivation voluntarily placed them in the name of some favored courtiers (called tarafdars) whose influence at court would protect them from the rapacity of the king, and members of whose retainers could be strong enough who keep the marauding tribes away12.

Thus the aggressive unity of Hindu patriarchal family and the fear of hostile confiscation by rulers were the most primitive and original motives for keeping the properties under the names of non-owners.

It is not strange to postulate that many customs continue to exist for long time even after their inceptive reasons and motives have disappeared. It is generally because long persistent practices emboss themselves upon the cultural design of society. But in certain exceptional cases, the pushing force of a reasonless custom is not its embossing effect but the shrewd stretch of its applicability to other more propitious ends and subjects, at times, turning its earlier veracity into perversity and degeneracy. The case of holding benami properties is no different. Its original motives have died out, yet it is persisting with full legal force; and people are still practicing it eagerly. It is obviously not because people love to carry on the precepts of their forefathers owing to embossment on their social conscience, but because this custom promises them certain economic benefits that are often less noticed but are not less lucrative.

Following is a reckoning of those modern reasons which motivate people to put the mask of benami on their properties so anxiously;

(1) The most notorious motive is baffling and defrauding the creditors13. Although section 53 of The Transfer of Property Act, 1882 declares a transfer of property with intent to defraud creditors as voidable, yet the creditors are put to considerable inconveniences where debtors have purchased a property with the debt-money in the name of some benamidar. Furthermore, even if the debtor transfers his own property to a benamidar (which is also called a sham transfer14), the creditor must invoke the Court of Law for getting a favorable decree resulting in wastage of long time and plentiful money. This frequently forces the creditors to compromise with the debtors thereby settling down to a substantially decreased amount actually received back from the debtors. Such state of affairs leads to acute uncertainty as to recovery of debts and other amounts of like nature due, which might directly hamper the overall economic growth of state.

(2) Desire to evade taxes is another motive of persons entering into benami transactions. The victim here is not individual, but the state15. Under the law of Income Tax in Pakistan, income/rent from land or building is taxable, if it is exceeding a minimum amount of annual rent set by the Law16. This kind of tax is receivable from "owner of land"17. Under this legal situation, it is not difficult for benami property to escape the levy of tax. It can manage this in two ways. First, the real owner can split up the unity of ownership of his property by effecting its ostensible sale in the name of one or more benamidars. Let's suppose, A intends to buy two Kanals of united land the rent of which is subject to taxation. He, instead of buying the whole unity of land in his own name, executes four sale deeds each bearing ten marlas, and mentions the names of C, D, E and F as purchasers.

Thus, under the prevailing legal condition each apparent purchaser — indeed, the real owner behind — can not only enjoy the substantial decrease in the amount of tax owing to slab-rates concession available in Taxation Laws18, rather, in many cases, he can plainly claim total exemption through ostensible purchaser by bringing about so much virtual divisions of property as are sufficient to exclude it outrightly from the taxation net. The second way adopted for adversely affecting the levy of rent is putting the taxation authorities into indiscernible confusion as to "owner of land". The mask of benami, yet not illegitimate, is often denounced by taxation authorities for the reason that it tends to make all sources of income of a person untraceable, because, having lent the facade of ownership to somebody else he does not look to be "owner". Therefore, if benami is not outlawed, at least a provision must be made in Taxation Law to compulsorily require a person to show all the properties of which he is the real owner, notwithstanding that the properties are held by himself or by his benamidars.

(3) Another motive for benami properties that has gained enormous utility in recent times is making the black money safely utilizable as white-money (sometimes, convertible into white money). In a country where government officials and politicians are time after time ascribed the corruption of billions of rupees, and in a country which is infamous for her corrupt rulers, it cannot be ruled out that means are discovered (or invented) to utilize these illicit gains. Benami property supplies one of the most impervious and safe means of that kind.

(4) Apart therefrom, hiding the property from the eyes of Election Commissions, Accountability Bureaus, Anti-corruption Courts and from all other Courts and fora competent to forfeit or attach it before or after judgment is another motive for which properties are kept benami.

The upshot of the above analysis is that the prime object of benami transaction of property has been and is "concealment of the real owner" till the time he desires or his hidden purposes are served. In old times, he concealed himself either to submerge into the secure unity of joint Hindu-Family or to protect his land from usurpatory conquests. But now when those reasons have faded, he still conceals, with a difference that previously his motives were somehow justifiable but now there is not a single respectable motive; for their being hardly any legitimate and noble motive left for such a practice in modern times. This type of custom has found legal recognition nowhere in the world apart from the Sub-continent. Even the British rulers have never accepted this custom wholeheartedly.

They could not declare the practice absolutely illegal because of its so large and widespread prevalence19. However, there have been several enactments20 in times of British Government to discourage benami sale. India, the motherland of this custom, has abolished the same since 1988 vide the Benami Transactions (Prohibition of the Rights to Recover the Property) Ordinance (No.2 of 1988)21. It is strange why nobody from the ruling elites of Pakistan has ever attended to the viciousness of benami properties. It should have been debarred long before, for it has become completely redundant, outmoded and injurious to the modern political and economic structure of state.

---

1. See P.J.FITZGERALD, MA, Salmond on Jurisprudence, 11 Edn, S.35, Page 199.

2. ILR Mad235(PC)

3. Agnew; (Tagore Law Lectures) Law of Trust, Page. 94

4. PLD 1957 SC (Ind.)188

4a. Story, Equity Jurisprudence, (1919), Page 507, Para 1201, IP, WP 607; 10 Ves 366.

5. Mulla: Hindu Law, 12th Edn. Page 748

6. V.V.Chitaley, The Transfer of Property Act, 1882, 2nd Edn, Vol.1, Page. 564.

7. AIR 1930 Nag. 273 at Page 278

8. AIR 1918 PC 104

9. Sarbadhikari; Law of Inheritance (Tagore Law Lectures No. IV & V)

10. See Wilson Glossary of Indian Terms; MacNaghten Selected Report, Wol.l, Reporter's Note at Page 368. Also See Syed Azhar Ali v. Bibi Ultaf Fatma, 13 W.R. 1; 13 M. I. A. 232.

11. Sir Fredrick Pollock; Law of Fraud, Misrepresentation and Mistake (1894) Pages 83 & 84. "In those unfortunate countries, indeed, where men are continually afraid of the violence of their superiors, they frequently bury and conceal a great part of their stock...." Adam Smith; Wealth of Nations, Book-Il, Chapter I, Page 169.

12. Baden-Powel; Land Revenue Tenants in British India, 2nd Edn., Page 58.

13. K.K.Bhattacharia; Joint-Hindu Family, (Tagore Law Lectures) (1884-85) Pages 469 & 470. See also Sir Fredrick Pollock; Loc. cit.

14. PLD 1957 SC (Ind.) 188

15. 57th Report of Law Commission of India; Chapter 1, Para 1.7 (c).

16. See Clause (ii), Sub-section. (7), Section 15 of the Income Tax Ordinance, 2001, as amended by the Finance Act, 2006 where by annual rent not exceeding Rs. 1,50,000/- in a Tax Year is exempt from the levy of Income Tax.

17. See sub-section. (2), Section 15 of Income Tax Ordinance, 2001.

18. Division VI, Part -I, First Schedule of Income Tax Ordinance, 2001 as amended by the Finance Act, 2009.

19. K. K. Bhattacharia; Loc. cit, Pages 469-470

20. For instance, under Regulation No. 11 of 1822, the government was empowered by Sections 19 and 20 to annul benami purchases made at a sale for arrears of revenue. Another enactment is Act 12 of 1841, Section 22 whereof provides that any suit brought to oust a certified purchaser, though by agreement the name of the certified purchaser was used, shall be dismissed with costs. Section 66 of the Code of Civil Procedure, 1908 enacts provision almost to the same effect.

21. Promulgated by the President of India on May,19, 1988, and published in the Gazette of India, Extra., Pt. II, Section 1, dated 19-05-1988 (SI. No. 28].