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Banks, which currently find it difficult to recover money from promoters of wilful-defaulter companies, or other borrowers, might get some relief if the Benami Transactions (Prohibition) Amendment Bill, recently tabled in the Lok Sabha, is enacted.
This might allow lenders to stake claim to benami properties of defaulters. At present, they have claims only over those properties that have been held as collateral.
Benami properties are the ones held in the name of persons other than those who are ultimate beneficiaries.
Banks' claims to benami properties of borrowers will be heard by an adjudicating authority to be set up under the proposed Act.
"The adjudicating authority, after providing an opportunity of being heard to the alleged 'benamidar', or the beneficial owner; any interested party, including a banking company; and any other person who makes a claim in respect of the property; shall pass an order within one year, holding the property to be a benami property or otherwise," says the Bill, moved in the House on May 13, the last day of the Budget session.
These properties could be tangible, such as real estate and gold, or intangible, such as financial securities.
Vikram Babbar, director, Fraud Investigation & Dispute Services, EY India, says: "Banks can stake claim if borrowed money is diverted to create benami properties, or collaterals are turned into benami properties."
K V Karthik, senior director of forensic services, Deloitte India, says if a borrower wants to do a fraud, he is unlikely to keep the properties in his name, as these might be taken away if held as collateral.
"Frauds are committed by siphoning of funds or converting collaterals into benami properties," he adds.
According to the Bill, the initiating officer, who will be appointed from among assistant or deputy income-tax commissioners, will be authorised to pass an order for provisional attachment of alleged benami properties. Within 15 days from the date of the attachment, he will have to draw up a statement of the case and refer it to the adjudicating authority.
Then, the authority will within 30 days ask for documents, particulars or evidence from banks concerned, or any other interested party. While the Bill provides for the exact quantum of punishment and penalty for benami property beneficiaries, it does not give exact details of how the proceeds from the property are to be shared by banks or other claimants. This will be decided on a case-to-case basis, experts say. The exact process might be defined under the rules that will come up after the enactment.
In fact, one of the purposes of amending the Act of 1988 is that the existing legislation does not give powers to the government to frame rules under the Act. These are the rules that will determine how smooth execution of the process to give claims to benami properties to banks will be and how fast they will be able to recover their dues, says Babbar.
The proposed Act will provide leverage to banks, which at present struggle to contain their mounting non-performing assets. The banking sector's asset quality has deteriorated in the past year, with their gross non-performing asset (GNPA) ratio inching up to 4.45 as on March 15 this year, compared with 4.1 in March 2014, according to the latest data released by the Reserve Bank of India (RBI).
RBI Governor Raghuram Rajan had, in fact, cautioned last week that the quantum of bad loans in the Indian banking system might not have peaked yet. Also, Moody's Investors Service had last week warned that India's sovereign rating, currently at the lowest investment grade, could be affected if banks did not repair their asset quality.
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What is benami? Persian for "without name" or "no name". In the Bill, benami is used to define a transaction where the real beneficiary is not the one in whose name a property is purchased. What does not become a benami property?
Assets of any kind - movable, immovable, tangible, intangible - any right or interest, or legal documents, gold or financial securities. |
Could banks stake claim on wilful defaulters' properties?
Yes, if the defaulter siphoned off borrowed money to create these properties, or converted collaterals into benami properties
