Standard Of Basis Of Belief Is On Higher Pedestal In Benami Act Than Under BNS & BNSS: Delhi High Court

The Delhi High Court observed that the standard of basis of belief is on higher pedestal in the Prohibition of Benami Property Transactions Act, 1988, than the belief under the Bharatiya Nyaya Sanhita, 2023 (BNS) and Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) i.e., earlier Indian Penal Code, 1860 (IPC) and Criminal Procedure Code, 1973 (CrPC), respectively.

The Court was hearing a Writ Petition preferred against a Show-Cause Notice (SCN), Provisional Attachment Order (PAO), and the consequent Notice issued by the Adjudicating Authority under the Benami Act.

A Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar explained, “In Section 35 of BNSS, a police officer is empowered to arrest a person on reasonable suspicion, which may lead him to believe a person to be involved in a cognizable offence. Whereas a reasonable suspicion may be a reason for a police officer to believe criminal involvement of a person under BNSS, the Benami Act makes the precondition more stringent. In Section 24 of the Benami Act, only on the basis of some material in his possession, the Initiating Officer can form a belief of a person being Benamidar in respect of a property. Standard of basis of belief is on higher pedestal in the Benami Act than the belief under BNS and BNSS (earlier IPC and Cr.P.C.) but it falls short of ‘prima-facie case’ which is a standard for a Judicial or Quashi Judicial Authority for proceeding against a person under respective laws.”

The Bench said that Section 24 (1) of the Benami Act does not burden an Initiating Officer to first work out a prima facie case before issuing a show cause notice or give opportunity of hearing and cross examining the witnesses to notice.

Advocate Nitin Kanwar represented the Petitioner, while Senior Standing Counsel (SSC) Shlok Chandra represented the Respondents.

Brief Facts

The Petitioner having a business of Goods Transport Services since 2009, was providing goods courier services since 2014 to Vestige Marketing Pvt. Ltd. (VMPL), a marketing company dealing in FMCG and health related products. The system functions on the basis of members distributors introducing additional persons into the scheme downline. Various commissions are paid to the members computed on the basis of the number of new members they introduce. A major portion of VMPL’s expenditure pertains to such commission payments. There is no fixed percentage for calculating these commissions, and the same varies from distributor to distributor. The industry attracts participants by highlighting the high commission income paid to individual distributors. In 2023, a search action under Section 132 of the Income Tax Act, 1961 (ITA) was conducted on VMPL and its owners, directors, and auditor.

During the search, Excel sheets titled “Bogus Expenses Employee-Wise” were found in a pen drive. It was found that VMPL Group had made payment to various parties for the use of services but the said services were not received by them. The said excel sheet also listed "Shyamsundar Choudhary", receiving bogus payments from FY18-19 till FY 22-23. Hence, SCNs were issued and the Initiating Officer attached bank accounts of the Petitioner. Thereafter, he drew up a statement of the case and referred it to the Adjudicating Authority, which issued a notice to the Petitioner to which an adjournment letter was moved by the Petitioner and instead of contesting the matter there, a Writ Petition was filed before the High Court.

Court’s Observations

The High Court in the above regard, observed, “The Courts cannot substitute their own wisdom with the logic and reasoning of Initiating Officer, though the Court can examine relevance of reasons vis a vis material seized, which persuaded the Initiating Officer to issue a notice under Section 24 (1) of the Benami Act. Here the expression “has reason to believe” as occurring in Section 24 of the Benami Act requires some discussion. This Act provides a quasi judicial mechanism, hierarchy and procedure to deal with Benami transactions, which is civil in nature. It also makes Benami transactions punishable under Chapter VII and makes it a criminal offence.”

The Court noted that under Section 24 (4), the Initiating Officer is empowered either to continue with the provisional attachment made under Section 24 (3) of the Benami Act or revoke such provisional attachment with prior approval of the Approving Authority.

“The Initiating Officer, under Section 24 (5) of the Benami Act may thereafter draw up a statement of the case and refer it to the Adjudicating Authority. On receipt of reference under Section 24 (5), the Adjudicating Authority shall issue a notice to the Benamidar and after considering his reply and making the necessary enquiries and calling for evidence, provide for an opportunity of being heard to the Benamidar as well as the Initiating Officer”, it added.

The argument of the Petitioner was that he is nowhere connected with the alleged transactions/bogus dealings as he is ‘Shyamsundar Sharma’ whereas in the Excel sheets, the name is mentioned as ‘Shyamsundar Choudhary’.

“Perusal of the Show Cause Notice and the attachment order reveals that identity of the petitioner was revealed not only through the contents in Pendrive but also in the statement of beneficial owners namely, Sh.Deepak Choudhary and Sh.Gautam Bali”, said the Court.

The Court was of the opinion that the Initiating Officer has written in detail as to what are the reasons to believe that the Petitioner is a Benamidar and this opinion cannot be tinkered with by the Court specially when the Petitioner has an efficacious remedy before Adjudicating Officer under Section 26 of the Benami Act.

“We have considered the judgments cited by learned Counsel for the petitioner in Amarendra Kumar (Supra). The Supreme Court of India in the said case infact held that wherever the expression ‘reason to believe’ appears, the opinion of the Authority would be conclusive. Therefore, para 28 of the aforesaid judgment favours more to the respondent than the petitioner”, it remarked.

Conclusion

The Court further noted that in show cause notice, the Initiating Officer has given reasons as to how it is a case of Benami transaction and at this initial stage, the Court would not like to enter into the complexities of the merit and evidence of the case for the purpose of determination of a Benami transaction.

“… there is no doubt that Section 24 (3) of the Benami Act provides for previous approval of the Approving Authority in writing for attaching provisionally the property held Benami. But there is no statutory requirement that copy of such approval by the Approving Authority should be supplied to Benamidar or Beneficial owner alongwith attachment order. However, if the petitioner makes a demand of such copy, the department must provide it to him. Remaining questions raised by the petitioner as above are to be considered by Adjudicating Authorities and not by this Court”, it also said.

Grievance of the Petitioner was that his all accounts have been attached leaving no money with him even to pay salaries of his employees and conduct normal business activities. In view of this, the Court clarified that it would be open for the Petitioner to raise this plea before the Adjudicating Authority, who is empowered to revoke the attachment order under Section 26 of the Benami Act.

“Here, we deem it appropriate to say that any observations of this Court in this order shall not affect the adjudicating process and the Adjudicating Authority shall be at liberty to form its own opinion on all the issues raised by the petitioner before it. Accordingly, we find no substance in the writ petition”, it concluded.

Accordingly, the High Court dismissed the Writ Petition.

Cause Title- Shyamsundar Sharma v. ACIT/Initiating Officer, Benami Prohibition Unit-2, Delhi & Anr. (Neutral Citation: 2025:DHC:10372-DB)

Appearance:

Petitioner: Advocates Nitin Kanwar. Parul Kanwar, Rajiv Kumar, Dushyant Nayak, Shivam Jain, and Jitendra Kumar.

Respondents: SSC Shlok Chandra, Junior Standing Counsel (JSCs) Naincy Jain, and Madhavi Shukla.

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