Karnataka High Court Quashes Orders in Benami Property Case, Upholds Beneficial Owner's Rights

Court directs clear communication to beneficial owners in notices under the Prohibition of Benami Property Transaction Act, 1988.

In a significant judgment, the Karnataka High Court, presided over by Justice Suraj Govindaraj, quashed the orders issued under the Prohibition of Benami Property Transaction Act, 1988, in the case of Shri. Nara Suryanarayana Reddy versus the Initiating Officer. The court emphasized the need for explicit communication to beneficial owners regarding their right to respond to notices issued to Benamidars.

The case arose when a notice was issued to a Benamidar, with a copy marked to the beneficial owner, Mr. Nara Suryanarayana Reddy. The petitioner challenged the orders passed without being explicitly called upon to reply to the notice, citing a violation of natural justice principles. The High Court recognized the petitioner’s right to submit a response, stating that Section 24(2A) of the Act allows beneficial owners to furnish explanations once a notice is marked to them.

The court concluded that the revenue must ensure future notices explicitly mention the requirement for beneficial owners to respond, thereby safeguarding their rights. Consequently, the orders dated 30th July 2025 and 26th August 2025 were quashed, allowing the petitioner 15 days to reply to the notice. The court directed the Initiating Officer to consider the reply and pass necessary orders.

Additionally, the court instructed the Income Tax Department to issue proper guidelines to officers for ensuring compliance with the Act’s requirements. This judgment underscores the importance of clear procedural guidelines in upholding the rights of individuals involved in benami property transactions.

Bottom Line:

Prohibition of Benami Property Transaction Act, 1988, Section 24(1), (2), and (2A) - Requirement for the revenue to specifically call upon the beneficial owner to reply to a notice issued to the Benamidar under Section 24(1) - Held, Section 24(2A) recognizes the right of the beneficial owner to reply to the notice under Section 24(1) - Revenue must categorically state in the notice that the beneficial owner is also required to reply, submit explanation or submission within the specified time frame.

Statutory provision(s): Prohibition of Benami Property Transaction Act, 1988 - Sections 24(1), 24(2), and 24(2A)

Shri. Nara Suryanarayana Reddy v. Initiating Officer, (Karnataka)(Dharwad) : Law Finder Doc Id # 2797194