Prohibition of Benami Property Transactions Act, 1988

Section 3: Prohibition of Benami Transactions

Section 3 lays down the basic statutory rule that no person shall enter into a benami transaction. The law is now titled the Prohibition of Benami Property Transactions Act, 1988, as renamed following the Benami Transactions (Prohibition) Amendment Act, 2016.

Updated: 14 September 2026

In brief: Section 3 prohibits benami transactions. For transactions entered into on or after 1 November 2016, Section 3(3) directs that punishment is governed by Chapter VII of the Act, including Section 53 where its statutory conditions are satisfied.

What is a benami transaction?

Section 2(9) of the Act contains the detailed definition of a benami transaction. Broadly, it covers specified transactions or arrangements in which property is held or transferred in the name of one person while the consideration is provided by another person and the property is held for the direct or indirect benefit of the person who provided the consideration, subject to the statutory exceptions and other categories set out in Section 2(9).

For the complete definition and the statutory exceptions, see Section 2 - Definitions.

Text and effect of Section 3

Section 3 - Prohibition of benami transactions

No person shall enter into any benami transaction.
Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
Whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016 shall, notwithstanding sub-section (2), be punishable in accordance with Chapter VII.

Which punishment applies?

The 2016 amendment came into force on 1 November 2016. The present Section 3 distinguishes between the earlier statutory period and transactions entered into on or after that date.

Transactions from 5 September 1988 to 31 October 2016: Section 3(2) contains the earlier punishment provision of imprisonment up to three years, or fine, or both.
Transactions on or after 1 November 2016: Section 3(3) applies and refers punishment to Chapter VII.
Section 53: where a person enters into a benami transaction to defeat the provisions of law, avoid payment of statutory dues, or avoid payment to creditors, the persons specified in Section 53 may be guilty of the offence. On conviction, Section 53(2) provides rigorous imprisonment for not less than one year and up to seven years, together with a fine that may extend to 25 per cent of the fair market value of the property.

Related consequences under the Act

Section 3 should be read with the other provisions of Chapter II and with the enforcement provisions of the Act. Important related consequences include:

Section 4 - prohibition of suits, claims, actions and defences seeking to enforce rights in property held benami.
Section 5 - property that is the subject matter of a benami transaction is liable to confiscation by the Central Government.
Section 6 - prohibition on re-transfer of benami property by the benamidar, subject to the Act.

Current legal position: Supreme Court in 2026

In Manjula v. D.A. Srinivas, 2026 INSC 465, decided on 8 May 2026, the Supreme Court discussed the post-2016 scheme of the Benami Act and stated that Section 3 categorises consequences according to the date of the transaction. The Court noted that transactions entered into from 5 September 1988 to 31 October 2016 fall under Section 3(2), while transactions entered into after commencement of the 2016 amendment are governed by Section 3(3) read with Chapter VII.

The judgment also explained that confiscation and criminal prosecution operate in distinct statutory spheres. Criminal punishment remains governed by the relevant offence and prosecution provisions, including the statutory requirements applicable to Chapter VII.

Why Section 3 is important

Section 3 is the central prohibition in the legislation. However, whether a particular arrangement is legally a benami transaction depends on the complete definition in Section 2(9), the exclusions and exceptions built into that provision, the facts of the transaction, and the other applicable provisions of the Act. The prohibition should therefore not be applied merely because property stands in one person's name while funds have moved from another person; the statutory definition must be examined in full.

Official legal sources

For authoritative verification, refer to the Prohibition of Benami Property Transactions Act, 1988 on India Code. The Central Government's 2016 explanatory release confirming the renamed Act and commencement from 1 November 2016 is available through the Press Information Bureau.

Legal note: This page is a general statutory guide. Application of the Benami Act can depend on the transaction date, source of consideration, relationship between the parties, statutory exceptions, purpose of the arrangement, and procedural history.