The word “benami” is of Persian origin and literally means “without a name”. The term is used to denote the transaction of a person when such a person has not used his own name, but that of another. Thus, if a buys property in the name of 6, it would be a benami transaction, because the money is advanced by A, whereas the property stands in the name of B. This is a very common practice in India amongst the Hindus.
The benami system is not, however, a specialty of Hindu Law. Such transactions are also common among Muslims, and under Muhammedan Law, they are known as furzee.
The reasons for entering into benami transaction are manifold. This practice has arisen partly from superstition, because some names were considered lucky and others unlucky. Another reason was that this was a convenient mode of concealing family affairs from the public eye.
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Yet other transactions of this nature originated in fraud or were entered into with fraudulent motives. Thus, for instance, if X was heavily indebted, he would purchase property in the name of Y, so that his creditors would not be able to attach such property. X could also do so to evade payment of tax.
Thus, in all cases where A advances the purchase price of property, which is registered in B’s name, it being plainly understood between A and В that, in fact, though not in law, the property is to belong to A, it would be a case of a benami transaction, and В would be called a benamidar.
It may be noted that benami transactions are not confined to purchases only. Thus, a person may take a lease of immovable property in the name of another. Or, he may create a mortgage of his property for a fictitious consideration. Such transactions would also be benami.
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The law on benami transactions in India was drastically changed by the Benami Transactions (Prohibition) Act, 1988.