Benami Transactions, Demonetisation Cash Routing and Provisional Attachment

 

Statutory Definitions, “Reasons to Believe” under Section 24(1), and the Doctrine of Independent Satisfaction

 

M/s Bajrang Traders v. Initiating Officer, BPU, Ahmedabad

Decision dated 10 December 2025

(Appellate Tribunal under SAFEMA)

 

The decision rendered by the Appellate Tribunal under SAFEMA, New Delhi, in M/s Bajrang Traders v. Initiating Officer, BPU, Ahmedabad, decided on 10 December 2025, is a significant exposition of the Prohibition of Benami Property Transactions Act, 1988, particularly in the context of demonetisation-era cash conversion and routing of funds through dummy bank accounts. The ruling provides authoritative clarity on the interpretation of key statutory definitions, the scope and content of “reasons to believe” under section 24(1), and the permissibility of reliance on material gathered by the Income-tax Department while initiating benami proceedings.

 

At the threshold, it is necessary to appreciate the definitional architecture of the 1988 Act, which forms the foundation of the entire adjudicatory exercise. Section 2(9) defines a “benami transaction” as a transaction or arrangement where property is transferred to or held by one person, but the consideration for such property is provided, or paid, by another person, and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. The essence of the definition lies not merely in the form of ownership, but in the separation between the person in whose name the property stands and the person who actually funds and benefits from it. The Act thus embodies a substance-over-form principle, designed to penetrate colourable arrangements and identify the real economic owner.

 

Closely allied to this is the definition of “benamidar” under section 2(10), which refers to a person or a fictitious entity in whose name the benami property is transferred or held, and includes a person who lends his name to such transaction. In contrast, section 2(12) defines the “beneficial owner” as the person for whose benefit the benami property is held and who has provided the consideration, whether directly or indirectly. The property itself, when so held, falls within the definition of “benami property” under section 2(8), which includes not only the property held benami but also the proceeds thereof. These interlinked definitions collectively establish that control, benefit, and source of consideration are determinative, rather than nominal title or the mode of transfer.

 

The factual matrix of the case arose against the backdrop of demonetisation of high-denomination currency notes. During this period, a survey under section 133A of the Income-tax Act, 1961, was conducted at the Memnagar Branch of Axis Bank, which revealed the existence of several bank accounts opened and operated in the names of individuals and proprietary concerns that had no real business activity. These accounts were used for depositing large amounts of cash in demonetised currency, followed by immediate transfers through banking channels, including RTGS, to various beneficiaries. Statements recorded under section 131 of the Income-tax Act disclosed that the account holders were merely name-lenders who were paid a fixed monthly amount for allowing the use of their accounts and that the cash deposited neither belonged to them nor arose from any legitimate business.

 

One such account was that of M/s Green Traders, a proprietary concern in the name of Amir Yusuf Pathan. The material on record, including sworn statements, established that the account was controlled and operated by Tejas C. Desai, with the assistance of intermediaries such as Afzalbhai Sadikali Savjani. Substantial cash deposits aggregating to approximately ₹13.50 crore were made into this account, despite there being no genuine business activity. Out of these deposits, a sum of ₹50 lakh was deposited in cash through an Angadia operator and thereafter transferred via RTGS to the appellant firm, M/s Bajrang Traders. On these facts, the Initiating Officer formed the view that M/s Green Traders was a benamidar, while M/s Bajrang Traders was the beneficial owner of the amount so routed.

 

Proceedings were accordingly initiated under section 24 of the 1988 Act. Section 24(1) empowers the Initiating Officer to issue a notice to show cause where, on the basis of material in his possession, he has “reason to believe” that a person is a benamidar in respect of a property, provided such reasons are recorded in writing. Section 24(3) further authorises provisional attachment of the property to prevent its alienation during the pendency of proceedings. The provisional attachment was confirmed by the Adjudicating Authority under section 26(3), leading to the appeal before the Tribunal.

 

The principal legal challenge raised by the appellant was that the mandatory requirement of recording “reasons to believe” under section 24(1) had not been complied with. It was contended that the Initiating Officer neither recorded such reasons independently nor supplied them separately to the appellant, thereby vitiating the entire proceedings at inception. The Tribunal, however, after examining the show cause notice and the record, rejected this contention. It held that the statute requires reasons to be recorded in writing before issuance of notice, but does not mandate that such reasons must be communicated in a separate document or in any particular format. On facts, the Tribunal found that the show cause notice itself contained a detailed articulation of the material considered, including analysis of bank statements and sworn statements, and expressly recorded the reasons which led the Initiating Officer to form the belief that the transaction was benami. The incorporation of such reasons in the notice itself was held to be sufficient compliance with section 24(1).

 

The appellant further argued that the proceedings were vitiated by borrowed satisfaction, as the Initiating Officer had allegedly acted solely on the basis of information supplied by the Income-tax Department without conducting an independent inquiry. This contention was also negatived by the Tribunal. It was observed that the use of information received from another statutory authority does not, by itself, invalidate the initiation of proceedings, so long as the Initiating Officer independently applies his mind to such material. The Tribunal noted that the show cause notice itself demonstrated careful analysis and independent satisfaction, thereby dispelling any allegation of mechanical or derivative action.

 

An attempt was also made by the appellant to explain the receipt of ₹50 lakh as consideration for earth-filling work allegedly undertaken at Bhavnagar. The Tribunal found this explanation to be entirely unsubstantiated, as no contract, work order, invoice, or details of the payer were produced. The Tribunal emphasised that in benami proceedings, particularly those arising out of demonetisation-related cash routing, mere receipt of funds through banking channels cannot legitimise a transaction when the surrounding circumstances unmistakably point to a colourable arrangement for converting demonetised cash.

 

The argument that there was no direct evidence to show that the appellant had supplied cash for deposit in the benamidar’s account was also rejected. The Tribunal clarified that under the statutory scheme of the 1988 Act, direct physical handling or deposit of cash by the beneficial owner is not a necessary ingredient. What is material is whether the transaction was structured for the benefit of the alleged beneficial owner and whether the flow of funds, viewed holistically, establishes such benefit. The routing of funds through an Angadia operator, followed by immediate credit to the appellant’s account during the demonetisation period, was held to be strong circumstantial evidence establishing the benami nature of the transaction.

 

In conclusion, the Tribunal upheld the provisional attachment and dismissed the appeal, holding that the statutory requirements under section 24 had been duly complied with and that the facts clearly established a benami transaction within the meaning of sections 2(8), 2(9), 2(10) and 2(12) of the Act. The decision reinforces the principle that benami law is concerned with economic reality rather than formal ownership and that courts and tribunals cannot introduce procedural fetters not contemplated by the legislature. It also underscores the heightened scrutiny applicable to demonetisation-era transactions involving cash deposits in dummy accounts and subsequent banking transfers.

 


Disclaimer:

This article is intended for publication and professional discussion in tax journals. It does not constitute legal advice and should not be relied upon as a substitute for independent legal opinion.