Appellate Tribunal Holds Unexecuted Agreement Not Benami under Section 2(9)(A) of the Benami Act

Introduction

In a significant ruling under the Prohibition of Benami Property Transactions Act, 1988 (‘Benami Act’), the Appellate Tribunal, SAFEMA, New Delhi, in North Star Homes v. Initiating Officer, BPU Hyderabad[i], set aside a provisional attachment order that sought to classify an incomplete transaction as benami. The Tribunal’s ruling reiterates a settled legal position that an agreement to sell, without execution of a registered sale deed and without actual transfer of ownership or possession, does not create any proprietary interest in the immovable property. The decision adds another layer to the judicial interpretation of S. 2(9)(A) of the Benami Act and offers practical guidance on when a transaction crosses the threshold to become benami.

Brief Facts

• The present case arises from a set of appeals filed before the Tribunal by (i) M/s North Star Homes (‘interested party’), (ii) M/s Padmanabha Marktech Pvt. Ltd. (‘alleged benamidar’), and (iii) Shri Rachakonda Srinivas Rao (‘alleged beneficial owner’), collectively referred to as the Appellants, challenging the confirmation of a provisional attachment order passed under the Benami Act.

• The case concerns an agreement to sell entered into between the interested party and the alleged benamidar for the purchase of a commercial property in Secunderabad. The total sale consideration agreed upon was Rs. 2.35 crores, of which Rs. 1.94 crores was paid by the alleged benamidar. However, the sale deed was never executed, and the property remained in the name and possession of the interested party.

• Based on inputs from the Anti-Corruption Bureau, Hyderabad, which alleged that the funds originated from the alleged beneficial owner, the Initiating Officer (‘Respondent’) provisionally attached the property under s. 24(4) of the Benami Act. The Adjudicating Authority (‘AA’) later confirmed the attachment, leading to the present appeal.

Held

The Tribunal allowed the appeals and set aside the AA’s order. The key findings included:

• The agreement to sell did not create any right, title, or interest in the property in favour of the alleged benamidar, as the full consideration was not paid, and the sale deed was never executed or registered.

• The transaction fell short of the statutory requirements under s. 2(9)(A) of the Benami Act, which necessitates that the benamidar must hold the property on behalf of the beneficial owner. In this case, neither transfer of ownership nor holding of the property occurred.

• The cash flow trail into the alleged benamidar’s account, while suspicious, was not conclusively proven to have originated from the alleged beneficial owner.

• The mere intention or contemplation to purchase a property without actual execution of sale is insufficient to classify the transaction as benami.

• The Tribunal reiterated that, in the absence of transfer of possession or ownership, even the protective shield under s. 53-A of the Transfer of Property Act, 1882 (‘TOPA’) would not apply to such third-party claims.

Our Analysis

The Tribunal’s reasoning aligns with well-established principles under the TOPA and the past Supreme Court jurisprudence. S. 54 of the TOPA unambiguously states that an agreement to sell, per se, does not create any interest in the property. This position was reinforced in Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra[ii], and Namdeo v. Collector, East Neemar, Khandwa[iii], both of which the Tribunal relied upon to affirm that unregistered agreements do not confer title or ownership.

The Tribunal’s finding is crucial for interpreting the term 'benami' as defined in s. 2(9)(A) of the Benami Act. The section defines benami transactions to include those where a property is held by one person, but the consideration is paid by another for the benefit of the latter. In this case, the absence of any actual holding or legal title, despite the payment of partial consideration, was pivotal to the Tribunal’s ruling. This interpretation narrows the application of the Benami Act and prevents its misuse in cases involving incomplete or failed property transactions.

Further, the case raises nuanced questions regarding evidentiary thresholds under the Benami Act. The burden of proof lies on the Respondent to establish that the transaction is benami. In this matter, although the Respondent alleged that cash was deposited into the benamidar’s account by associates of the alleged beneficial owner, there was no direct evidence establishing a nexus between the funds and the alleged beneficial owner. Statements under s. 164 of the Code of Criminal Procedure, 1973 (CrPC) by third parties, while potentially useful for investigation, do not by themselves meet the evidentiary standard required to substantiate a finding of benami ownership under the Benami Act.

Moreover, the Appellants rightly contended that the amended provisions of the Benami Act (effective from 01.11.2016) cannot be retrospectively applied to prior transactions. This reasoning is consistent with the constitutional bar on ex post facto penal legislation under a. 20(1) of the Constitution of India. The Tribunal’s acceptance of this argument adds to the growing body of case law limiting the retroactive application of the Benami Act’s penal consequences.

From a policy perspective, the ruling upholds the principle that only completed, legally binding transactions can be examined under the benami lens. This protects bona fide commercial arrangements that do not materialise or remain unexecuted. It also places necessary curbs on administrative overreach and protects against speculative or premature enforcement actions.

End Notes

[i] [2025] 171 taxmann.com 97 (SAFEMA - New Delhi).

[ii] [(2004) 8 SCC 614].

[iii] [(1995) 5 SCC 598].

Authored by Divya Pandey, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.