(a) Benami purchase:
A purchase by one person in the name of another person is called a benami purchase. Where A, under a secret understanding with B, purchases
property with his own money, but in B’s name the purchase is said to be benami. In such a case B is merely a benamidar or an ostensible owner.
(b) Provisions against benami transactions at execution sales:
ADVERTISEMENTS:
Section 66 of the Code provides that no suit shall be maintained against the certified auction purchaser on the ground that the purchase was made on behalf of the plaintiff and in a suit by a person claiming title under a purchase so certified, the defendant shall not be allowed to plead that the purchase was made on his behalf or on behalf of someone through whom the defendant claims, unless he can prove that the name of the said purchaser was inserted in the sale certificate fraudulently or without his consent.
If A purchases property in B’s name at a court sale, and a certificate of sale is issued to B, B will be conclusively deemed to be the real purchaser as against A, and no suit will lie under this section by A against B for possession of the property unless A can prove that B’s name was inserted in the certificate fraudulently or without his consent. The object of the said section is to put a stop to benami purchase at execution sales.
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This section bars a suit by a person claiming to be the real and beneficial purchaser, for it says that no suit shall lie against the certified purchaser on the ground that the purchase was made on behalf of the plaintiff. Nor in a suit by a person claiming title under a purchase so certified the defendant shall be allowed to plead that the purchase was made on his behalf.
ADVERTISEMENTS:
[Section 66 of the Code has been repealed by the Benami Transactions (Prohibition) Act, 1988, Act No. 45 of 1988, with effect from September 5, 1988. The doctrine of benami has by virtue of this enactment, ceased to be a part of Indian Law.]
(c) Benami purchase at private sales:
At private sales the law is that he who pays the purchase money is the real purchaser. There is no law in India to prevent such benami transactions in private sales, unless these are in fraud of creditors and the object of the fraud is carried out.
In fact the practice of purchasing property benami is very common in our country. Thus where A, under a secret understanding with B, purchases property, with his own money, in Bs name, B holds the property, in trust for A and A may compel B to transfer the property to him (A).
ADVERTISEMENTS:
If, however, A’s object in purchasing the property in B’s name was to defraud his creditors and the object of the fraud is carried out, the court will not help A in recovering possession of the property from B.
But if the object of the fraud is not carried out, the court will help A in recovering possession of the property from B notwithstanding A’s primary intention to effect a fraud.