Karnataka High Court Mandates Explicit Reply Call for Beneficial Owners in Benami Act Notices

BENGALURU: In a significant ruling aimed at bolstering procedural fairness and preventing technical litigation, the Karnataka High Court has established a new directive for authorities acting under the Prohibition of Benami Property Transaction Act, 1988. The Court mandated that Initiating Officers must now explicitly call upon the 'beneficial owner' to submit a reply when issuing a notice to a 'benamidar' under Section 24(1) of the Act.

The judgment, delivered by Justice Suraj Govindaraj, addresses a critical procedural gap that could potentially impinge upon the principles of natural justice and the rights of individuals identified as beneficial owners in alleged benami transactions. The Court held that merely marking a copy of the notice to the beneficial owner is insufficient; the notice itself must contain a clear and unambiguous direction for them to furnish an explanation or submission within the stipulated timeframe.

The ruling came while allowing a writ petition filed by Nara Suryanarayana Reddy, who was identified as the beneficial owner of a property held by a benamidar. The decision in Nara Suryanarayana Reddy AND Initiating Officer & Others (WRIT PETITION NO.107184 OF 2025) sets a precedent for how such notices must be framed nationwide, aiming to streamline proceedings and safeguard the rights of all parties involved.

---

Background of the Case: A Question of Natural Justice

The case originated when an Initiating Officer issued a notice under Section 24(1) of the Benami Act to a benamidar, alleging that the property in question was being held for the benefit of the petitioner, Mr. Reddy. As required by Section 24(2) of the Act, a copy of this notice was marked to Mr. Reddy, as his identity was known to the authorities.

The benamidar responded to the notice, and based on the proceedings that followed, the authorities passed an order. Mr. Reddy challenged this order before the High Court, raising a fundamental argument centered on the violation of the principles of natural justice.

His primary contention, as argued by Advocate Gangadhar J M, was that while he received a copy of the notice, it did not contain any language compelling or even inviting him to reply. The notice was addressed to the benamidar, and he was merely a recipient of a copy. This, he argued, effectively denied him a proper opportunity to be heard before an adverse order affecting his interests was passed. The petitioner claimed this procedural lapse impinged upon his rights and rendered the subsequent orders void.

Arguments Before the Court

The respondents, represented by Advocates M Thirumalesh and D Roopa, countered that the statute does not impose a requirement on the revenue authorities to specifically call upon the beneficial owner to reply. They argued that Section 24(2) only mandates that a copy be marked to the beneficial owner if their identity is known, a requirement they had fulfilled. It was, in their view, incumbent upon the beneficial owner, upon receiving the copy, to proactively provide an explanation within the time given to the benamidar if they wished to do so. The law, they contended, did not necessitate a formal, separate invitation to reply.

The Court's Analysis: Interpreting Statutory Intent and Procedural Rights

Justice Suraj Govindaraj undertook a meticulous examination of the relevant provisions of the Benami Act, particularly Section 24 and its newly inserted sub-section (2A).

The Court first noted the function of Section 24(2), which requires a copy of the notice to be sent to the beneficial owner if their identity is known. This itself, the Court reasoned, implies that the beneficial owner is a party of interest whose participation is contemplated by the statute.

The crucial element in the Court's analysis was the recently inserted sub-Section (2A) (via Amendment Act No. 15 of 2024, effective from 01.10.2024). This provision explicitly states that "the Benamidar to whom a notice has been issued under sub-Section (1) or the beneficial owner to whom a copy of such notice has been issued under sub-Section (2) , shall furnish the explanation or submission, if any, within the period specified..."

Justice Govindaraj observed that this amendment crystallizes the legal position. “I am of the considered opinion that Section 2A recognises the right of the beneficial owner to reply to the notice under sub-Section (1) of Section 24 of the Act,” the Court held.

Having established this statutory right to reply, the Court then addressed whether the existing format of the notice was sufficient to enable the exercise of this right. Upon reviewing the impugned notice, the Court found it lacking. “A perusal of the impugned notices would only indicate that there are references made to the beneficial owner and finally a copy has been marked to the beneficial owner. There is nothing in the notice calling upon the beneficial owner to reply to the said notice.”

The Directive: Ensuring Clarity and Preventing Future Litigation

Connecting the statutory right to the principles of natural justice, the Court concluded that for a right to be effective, the subject of that right must be made aware of it. A passive receipt of a copy of a notice addressed to another party does not constitute a valid opportunity to be heard.

Therefore, the Court laid down a clear and forward-looking directive:

“It would be required for the revenue while issuing a notice under sub-Section (1) of Section 24 of the Act to the Benaminar, mark a copy thereof under sub Section (2) of Section 24 of the Act and call upon the beneficial owner to reply to the same by way of furnishing explanation or submission by specifically stating so in the said notice.”

The Court astutely noted that adopting this clear procedure would also be in the interest of the revenue authorities, as it would preemptively address procedural challenges. “If at all, the same had been specifically stated, this kind of a technical objection could not have been raised by the petitioner delaying the matter,” the order read.

In conclusion, the Court allowed the writ petition, setting aside the impugned orders and permitting the petitioner, Nara Suryanarayana Reddy, to file a reply to the original notice within 15 days.

This judgment is poised to have a significant impact on the conduct of proceedings under the Benami Act. It reinforces the audi alteram partem rule and ensures that beneficial owners are not placed at a procedural disadvantage. Legal practitioners handling such cases must now be vigilant in ensuring that notices issued by Initiating Officers comply with this new, judicially mandated requirement for explicit communication.