Here's how PM Modi plans to hunt down benami property holders

With many offenders identified from digitsed records, govt will seize real estate and fine the owners of benami properties, or even jail them

In August 1988, the DA Desai Law Commission had given its report on benami property transactions to the Rajiv Gandhi government. Desai was overwhelmingly in favour of completely eliminating benami property transactions in India. An interesting analogy ensued during the discussions of the commission.
 
Those opposed to Desai gave the following analogy: An imaginary person named ‘A’ loved his wife intensely but also believed that she was a harbinger of good fortune to him. So he decided that he would buy a property in his wife’s name without giving her any beneficial interests. Even though he would not disclose this transaction, he would continue to show the property in his income-tax returns and pay the necessary taxes on it. The members argued that to call this transaction illegitimate would not be fair. In fact, they argued that this would be more illegitimate than an actual illegitimate benami transaction.
   
Desai gave a counter analogy: If this person ‘A’ loved his wife so intensely and believed that she was his lucky charm, why not transfer the property in her name for good and disclose the transaction to authorities? Desai dismissed the hypothetical illustration and asserted that benami property transactions were invariably entered into for illegitimate purposes. The primary aim of benami transactions, he averred, was to defeat India’s tax laws and park unaccounted wealth. The DA Desai Law Commission’s report led to the enactment of the Benami Transactions (Prohibition) Act, 1988.
 

Although an act had been in force for almost three decades now, there is little that has changed on the ground. Reports suggest that almost 50% of unaccounted wealth in India as of date lies in the real estate sector – most of it, invariably, benami.
 
Finally, Prime Minister Narendra Modi seems to have set the wheels in motion to crack down on benami property to curtail black money. Modi’s plan to smoke out the real owners of benami properties rests on a three-pronged strategy - using information from digitised property records and verifying them, monitoring property transfers since sounding out his warning to benami property holders on November 13, and a special monitoring of government officers with holdings much beyond their means.
 
Former bureaucrats hint that the first strategy has already been a work in progress since the Modi government came to power. The digitisation of land records in India was initiated in 2008 by the Manmohan Singh-led United Progressive Alliance (UPA) government in its first term, but progress was limited due to logistical challenges and manpower training issues. Between 2008 and 2014, almost Rs 954 crore was released for the purpose, covering 409 districts across India. Since the Modi government came to power in 2014, almost Rs 220 crore has been released for the purpose. Till now, 15 states and two Union territories (UTs) have made substantial progress in making land records available online. Property registration along with mutations have also been digitised to a large extent in these states. A substantial part of property registration is also believed to have been integrated with the land management system.
 
This has given the government a huge repository of information about benami property holders which is under scrutiny. What makes this information with the government valuable is an amended legislation backing it. The Benami Transactions (Prohibition) Amendment Act, 2016, came into force on November 3 this year and will act as a force multiplier for PM Modi’s plan to crack down on benami property holders.
 
A benami transaction now includes property transactions made in fictitious names, untraceable individuals who paid for the property, and those owners who deny any knowledge of ownership of a property. Earlier, a benami transaction was simply defined as a property held by or transferred to one person but paid for by another. The government’s property digitisation drive has provided it with a huge list of property owners (termed beneficial owners) who could now stand potentially accused of holding it illegally. Additionally, the digitisation drive has also armed the government with a list of benamidaars (the persons in whose name the property is held).
 
Both the benamidaar and the beneficial owners would now come under the scanner of an authority that has the powers to confiscate this property. Once the government sets the process in motion, an initiating officer will serve a notice on the benamidaar and take the property under his control. An adjudicating officer will then examine all documents and evidence and pass an order on whether to confiscate the property. Once the property is confiscated, it will be managed by an administrator till a further course of action is prescribed against the offender. What will further strike fear in the minds of beneficial owners and benamidaars is the provision of a jail term and massive fine if found guilty. The amended Act provides for prison terms of up to seven years and fines of up to 25% of the fair market value of the confiscated property. Earlier, the jail term was only three years but there was hardly any mechanism to identify or prosecute the offenders. Now, the government, armed with digital information and a legislation, is in a position to crack the whip on illegal property holdings across India.
 
The second strategy of the government revolves around monitoring property transfers after PM Modi announced his demonetisation drive on November 8 this year. There has been a scramble in the property market, with many people indulging in panic transactions. PM Modi further sounded a warning to benami property holders on Sunday. “The announcement has created a fear psychosis among benami property holders. With the prospect of massive fines, prison terms and a confiscation looming on the horizon, many have rushed into property transfers. All these transfers will come under the government’s scrutiny,” says Samir Jasuja of PropEquity, a website for real estate data and insights.
 
The third strategy involves cleaning up the bureaucracy at all levels. PM Modi on Monday stressed during a rally in Ghazipur that corrupt bureaucrats who hid piles of cash at their homes would have sleepless nights. The government’s vigilance scrutiny would cover a number of bureaucrats believed to have amassed properties much beyond what their means afforded. It is unclear whether the government has drawn a list of such bureaucrats, but PM Modi has hinted on the need to cleanse the bureaucracy during several speeches since coming to power in 2014. Cases like that of Yadav Singh, an engineer in the Noida Authority and Prabhakar Deshmukh, an Indian Administrative Services (IAS) officer from Madhya Pradesh, have shown that senior government officials have often been given a free hand to amass wealth under political patronage.

While PM Modi’s announcement may have sent shivers down the spine of benami property holders, there are still unresolved issues if his plan is to be successful. The process of appeal under the amended legislation could delay confiscation, recovery or imprisonment by many years. With many politicians across the spectrum involved in shady property deals, Modi may be bound by political compulsions especially with crucial state elections scheduled next year. Many big businesses have also acquired vast swathes of land in rural areas illegitimately. For Modi, known for his proximity to big corporates, targeting benami property may be more difficult than his demonetization masterstroke.