Section 24(1) Of Benami Act: Issued SCN Based On Prima Facie Suspicion Is Sufficient To Form Opinion On Provisional Attachment: Madras HC

While upholding the order of provisional attachment of property under Prohibition of Benami Property Transactions Act, the Madras High Court ruled that an attachment of the property till an order of confiscation is made is only a preliminary step in that direction, and all that is required at that point in time is the existence of a suspicion that the property could be involved in a benami transaction.

A Single Judge Bench of Justice N. Seshasayee observed that “When a show cause notice under Sec.24(1) is issued, it is based only on this prima facie suspicion, and this suspicion is sufficient for the initiating authority to form an opinion on provisional attachment. Set in the context, Sec.24(1) notice does not conclude anything as to affect the right of the petitioners. Indeed, the Act provides lots of checks and balances within its scheme in order to ensure that right to property of the citizen is not invaded and trampled upon by the statutory functionaries”.

Advocate K. Ravi appeared for the Petitioners while the Respondents were represented by Special Public Prosecutor M. Sheela.

The brief facts of the case were that a company with its directors (Petitioners) were booked for offences under Section 409, 420, 465 and 468 of IPC by FIR lodged pursuant to which the directors were taken for judicial custody. During the judicial custody, a notice under Section 24(1) of the Benami Act was issued to show cause as to why their properties be not treated as benami properties and during the custody itself the properties were provisionally attached. The directors replied to the show cause after they came out of the judicial custody and challenged the provisional attachment before the High Court.

After considering the submission, the Bench took note of the glaring facts that the provisional attachment of property was made during the judicial custody of the directors when the alienation of the property was impossible.

The Bench remarked that the Initiating Officer is not the investigating agency and there is nothing on record to indicate that the officer was aware of judicial custody of the Petitioners while issuing show cause notice or when provisional attachment was made.

Observing that Section 24(1) notice does not conclude anything as to affect the right of the petitioners, the Bench clarified that the Benami Act provides lots of checks and balances within its scheme in order to ensure that right to property of the citizen is not invaded and trampled upon by the statutory functionaries.

The High Court observed that it will be silly for an initiating authority to let an alienation of a benami property even as it tries to fix responsibility on the suspect.

Thus, the High Court elucidated that this attachment is different from Order XXXVIII Rule 5 of CPC which are more stringent and the attachment is made not with any intent to secure for a possible confiscation for the benefit of revenue administration of the State, but only to secure the interest of a creditor-plaintiff and there is neither a crime nor involvement of the State.

Accordingly, the High Court concluded that here the attachment is only provisional to secure the property which might be subject to confiscation eventually and thus, the Petitioners have all the opportunities to approach the Adjudicating Officer and explain why the provisional order of attachment is bad.

Cause Title: M. Kumudhavalli and Ors. v. Initiating Officer, Joint Commissioner of Income Tax and Ors.

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