The Benami Transactions (Prohibition) Act, 1988 only prohibits benami transactions as defined in Section 2(a) of the Act, which are transactions where property is transferred to one person for a consideration paid or provided by another person. Sham and nominal transactions, which are transactions that are only in name and not in reality, are not covered by the definition of 'benami transaction' and are not prohibited by the Act.

RATNAM, J.

1. Whether the Benami Transactions (prohibition) Act, 1988 (Act No. 45 of 1988) prohibits sham and nominal transactions also and it is not open to contend that a transaction is sham and nominal and no title passed under if, is the question that has been referred to us for decision.

2. Inasmuch as the reference has arisen in the course of the hearing of an appeal, which still awaits consideration and disposal at the hands of the learned single Judge who made the reference, we have refrained from referring to the factual background giving rise to the pending appeal with a view to enable the learned Judge to further deal with the matter in the light of the answer to the reference and on the facts as may be found on the evidence.

3. The answer to the question referred would depend upon the types of transactions comprehended within the expression “benami transactions” and the scope of the impact of the provision of the Benami Transactions (Prohibition) Act, 1988 (Act No. 45 of 1988) (hereinafter referred to as the Act) and its fore-runner the Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988 (Ordinance No. 2 of 1988) (hereinafter referred to as ‘the ordinance’) on such transaction. Whatever views might have been earlier entertained with regard to the types of transactions, which could be called “benami transactions”, considerable light had been thrown on the types of transactions, which can be appropriately comprehended within the expression “benami by two decisions of the Supreme Court in Meenakshi Mills Ltd. v. Commissioner of Income-tax. Madras

1 and Bhim Singh v. KanSingh AIR 1980 Supreme Court 727. In the first decision, Viz., Meenakshi Mills Ltd. v. Commissioner of Income-tax. Madras 1957 I MLJ I AIR 1957 Supreme Court 49, though arising under the provisions of the Income-Tax Act, 1922, the Supreme Court had to deal with question, whether certain intermediaries of the assessee-company, were benamidars for the assessee. In that connection, Venkatarama Ayyar, J,. speaking for the Court, clearly set out the types of the transaction comprehended by the word ‘benami’, in the following terms.

“. It is necessary to note that the word ‘benami’ is used to denote two classes of transactions, which differ from each other in their legal character and incidents. In one sense, it signifies a transaction which is real, as for example, when A sells properties to B, but the sale deed mentions x as the purchaser. Here the sale itself is genuine, but the real purchaser is B, x being his benamidar. This is the class of transactions which is usually termed as benami. But the word ‘benami’ is also occasion ally used, perhaps not quite accurately, to refer to a sham transaction, as for example, when A purpose to sell his property to B without intending that his title should cease or pass to B. The fundamental difference between these two classes of transaction is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter, there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the consideration for the transfer, X or B. But in the latter class of cases, when the question is whether the transfer is genuine or sham, the point for decision would be, not who paid the consideration, but whether any consideration was paid

Again, in Bhim Singh v. Kan singh AIR 1980 Supreme Court 727, the Supreme Court dealt with the kinds of benami transactions generally recognized in this country. In that context, the Supreme Court observed at page732 as follows:

“Two kinds of benami transactions are generally recognized in India. Where a persons buys a property with his own money but in the na