Interpreting “Consideration Paid or Consideration Provided” in reference to Benami Transaction

The Court in the case namely Pawan Kumar Gupta vs. Rochiram Nagdeo, decided on 20.04.1999(Civil Appeal No. 2369 of 1999) (MANU/SC/1187/1999: AIR1999SC1823), besides other issues dealt with the issue relating to Benami Transaction. As per Section 3(1) of the Benami Act no person shall enter into any benami transaction. This prohibition, as noted and also as judicially pronounced is prospective only.

The Court further observed that Section 2(a) of the Benami Act defines benami transaction as “any transaction in which property is transferred to one person for a consideration paid or provided by another person.” The word “provided” in the said clause cannot be construed in relation to the source or sources from which the real transferee made up funds for buying the sale consideration. The words “paid or provided” are disjunctively employed in the clause and each has to be tagged with the word “consideration”. 

The correct interpretation would be to read it as “consideration paid or consideration provided”. If consideration was paid to the transferor then the word provided has no application as for the said sale. Only if the consideration was not paid in regard to a sale transaction the question of providing the consideration would arise. In some cases of sale transaction ready payment of consideration might not have been effected and then provision would be made for such consideration. The word “provided” in Section 2(a) of Benami Act cannot be understood in a different sense. Any other interpretation is likely to harm the interest of persons involved in genuine transactions, e.g., a purchaser of land might have availed himself of loan facilities from banks to make up purchase money then could it be said that since the money was provided by the bank it was a benami transaction? The Court held that such narrow construction of the word “provided” in Section 2(a) of the Benami Act could not be accepted.