Court’s decision
The Kerala High Court dismissed a writ petition challenging show-cause notices issued under Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988. The Petitioner, an assessee under the Income Tax Act, sought quashing of notices alleging that cash seized during a police interception constituted benami property. The Court held that a notice under Section 24(1) requires only a prima facie “reason to believe” that a person is a benamidar, and that the statutory scheme mandates adjudication before the competent authority rather than intervention through writ jurisdiction.
The Court reviewed the statutory definitions of “benamidar,” “benami property,” and “benami transaction,” highlighting that Sub-section (9)(D) of Section 2 permits proceedings where consideration for the property is untraceable or fictitious. The Court found that the sworn statement given by the Petitioner regarding the sale of 2.7 kilograms of gold and possession of ₹88,77,000 raised sufficient grounds for initiation of proceedings. The Court further clarified that the coexistence of proceedings under the Income Tax Act does not preclude parallel action under the Benami Act due to Sections 60 and 67, which ensure the Benami Act overrides inconsistent provisions elsewhere.
Ultimately, the Court refused to halt the proceedings, calling the challenge premature. It directed the Petitioners to file objections within three weeks, and mandated that the Initiating Officer consider those objections without being influenced by observations made in the judgment.
Facts
The case arose after police seized ₹88,77,000 from the Petitioner during a vehicle inspection. A criminal case was registered, and the Income Tax Department simultaneously initiated proceedings under Section 131, calling for records and explanations of the seized amount. The Petitioner submitted a joint affidavit stating that the cash represented sale proceeds of gold sold in Coimbatore. The Petitioners subsequently filed revised returns, declaring the amount as cash in hand.
During this period, the Benami Prohibition Unit issued show-cause notices under Section 24(1). These notices required the Petitioners to explain why the seized cash should not be treated as benami property, and demanded supporting documents including bank statements from 2015 to 2020. The Petitioner challenged the notices on the ground that no material existed to justify initiation of proceedings and that the cash was already accounted for under Income Tax law.
The Respondents filed a detailed statement referring to the Petitioner’s own sworn admission regarding gold transactions and the concealment of cash in a secret chamber of the car. These facts, they argued, supported a prima facie belief necessary for issuance of Section 24 notices. The Petitioner approached the High Court seeking quashing of the proceedings.
Issues
- Whether issuance of show-cause notices under Section 24(1) of the Benami Act can be challenged before completion of adjudication.
- Whether the officer had adequate material to form a “reason to believe” that the seized cash constituted benami property.
- Whether disclosure of the amount in income tax returns prevents initiation of benami proceedings.
- Whether simultaneous proceedings under the Income Tax Act bar the Benami Act’s application.
Petitioner’s arguments
The Petitioner argued that the entire proceedings were without jurisdiction because the officer lacked material to form the statutory “reason to believe” required under Section 24(1). It was contended that the amount seized was traceable to gold sales, duly disclosed in revised returns, and assessed by the Income Tax Department. The Petitioner claimed that having accepted the explanation under Income Tax law, the authorities could not reopen the issue under the Benami Act.
The Petitioner further contended that Sub-section (9)(D) of Section 2, dealing with fictitious or untraceable consideration, was wrongly invoked. According to the Petitioner, there was no untraceable consideration and all transactions were legitimate. The notices, it was argued, were issued mechanically, without reference to credible evidence, and violated principles of natural justice. The Petitioner therefore sought quashing of the notices, claiming the process was an abuse of power.
Respondent’s arguments
The Respondents asserted that the seizure of an unusually large cash amount, coupled with the Petitioner’s admission that the cash was concealed and represented proceeds from gold transactions, created sufficient grounds to proceed under Section 24(1). They argued that the threshold at this stage is low—a prima facie belief—and detailed adjudication would occur only under Section 26.
The Respondents also submitted that proceedings under Income Tax law and the Benami Act operate independently. They relied on Sections 60 and 67 of the Benami Act to demonstrate that even if income tax assessments were completed, the Benami Act overrides conflicting provisions. They contended that the Petitioners’ challenge was premature since no final determination had been made, and the Petitioners had adequate opportunity to submit objections to the initiating authority.
Analysis of the law
The judgment provides a clear exposition of the Benami Act’s procedural framework. Section 24 permits provisional attachment or initiation of proceedings when the authority has a “reason to believe” that a person is a benamidar. This threshold is intentionally broad to allow investigation of opaque financial arrangements. The Act contemplates a multi-stage process culminating in adjudication under Section 26, where all parties are given opportunity to present evidence.
The Court emphasised that judicial intervention at the notice stage is reserved for cases where the notice is patently without jurisdiction or barred by law. Here, the officer possessed tangible materials: the Petitioner’s sworn statement regarding gold sales, the large quantity of concealed cash, and the absence of documentation substantiating lawful provenance. These collectively satisfied the statutory threshold. The Court also clarified that income tax proceedings do not foreclose benami action due to the Benami Act’s overriding provisions.
Precedent analysis
The judgment does not explicitly cite external precedents, but its reasoning aligns with established jurisprudence: courts rarely interfere with show-cause notices unless they are inherently without jurisdiction. Indian courts consistently uphold statutory schemes requiring factual determination by specialised authorities before judicial review. The High Court reaffirmed this principle by holding that objections must first be placed before the initiating officer, and writ jurisdiction should not be used to bypass statutory remedies.
Court’s reasoning
The Court found that the Petitioner’s sworn statement acknowledging gold sales and possession of a large cash amount was itself an adequate basis for the officer’s “reason to believe.” The concealment of cash in a secret chamber and lack of supporting records raised legitimate suspicion. The Court held that these circumstances justified invoking Section 24(1).
The Court also reasoned that filing revised returns and paying taxes did not immunise the Petitioners from benami scrutiny. Citing Sections 60 and 67, the Court emphasised that the Benami Act operates in addition to and overrides inconsistent provisions of other statutes. The challenge was therefore premature, and the Petitioners were directed to submit objections within three weeks. The authorities were instructed to consider the objections uninfluenced by observations in the judgment.
Conclusion
The writ petition was dismissed as premature. The Court upheld the validity of the show-cause notices, reiterating that statutory adjudicatory mechanisms must be followed. The Petitioners retain the right to contest the allegations during adjudication under Section 26. The Initiating Officer must provide a hearing and pass orders in accordance with law. No costs were awarded.
Implications
This judgment reinforces key principles in benami jurisprudence:
- Show-cause notices cannot be quashed unless issued without jurisdiction.
- Income tax compliance does not preclude benami proceedings.
- Authorities may investigate unexplained high-value cash transactions even when taxpayers file returns.
- Parallel proceedings under different statutes are permissible due to overriding clauses in the Benami Act.
The decision strengthens the investigative framework of the Benami Act and limits premature judicial interference, ensuring specialised authorities can complete statutory processes before courts intervene.
