Karnataka High Court Quashes Benami Orders, Directs Initiating Officers to Seek Response from Beneficial Owners
Isabella Mariam
The High Court of Karnataka, Single Bench of Justice Suraj Govindaraj set aside the proceedings initiated under the Prohibition of Benami Property Transactions Act, 1988, against a beneficial owner, holding that authorities must clearly inform such individuals of their right and obligation to respond. The Court directed that Initiating Officers, when issuing notices under Section 24(1) of the Act to a Benamidar, must expressly state that the beneficial owner is also required to submit a reply or explanation within the same time frame. The petitioner was permitted to file a response within fifteen days, and the revenue authorities were instructed to ensure future compliance.
The petitioner, Shri Nara Suryanarayana Reddy, approached the High Court seeking to quash an order dated 30 July 2025 issued by the Initiating Officer, Deputy Commissioner of Income Tax (Benami Prohibition), Panaji, and a notice dated 26 August 2025 issued by the Adjudicating Authority under the Prohibition of Benami Property Transactions Act, 1988. The petition was filed under Articles 226 and 227 of the Constitution of India.
The petitioner contended that a notice was originally issued to a benamidar alleging that the benamidar held property on behalf of the petitioner, the beneficial owner, under Section 24(1) of the Act. Although a copy of the notice had been marked to the petitioner, it did not state that the petitioner was required to reply. The petitioner’s counsel argued that this omission deprived the petitioner of an opportunity to respond and constituted a violation of the principles of natural justice. He submitted that orders were passed adversely affecting the petitioner without affording an opportunity to present an explanation.
The respondents contended that the law did not mandate any specific direction calling upon the beneficial owner to reply to a notice issued to a benamidar. They maintained that marking a copy of the notice to the beneficial owner sufficed to fulfil statutory requirements. According to the respondents, once the beneficial owner received the notice, it was within his right to furnish an explanation within the time specified for the benamidar, and failure to do so could not be used later to claim a violation of natural justice.
The petitioner, however, argued that the notice failed to clearly inform the beneficial owner of his right and obligation to respond under Section 24(2A) of the Act, as amended by Act No. 15 of 2024 effective from 1 October 2024. The petitioner contended that this procedural deficiency vitiated the proceedings.
Justice Suraj Govindaraj identified the central issue for consideration as “whether there is a requirement specifically for the revenue to call upon the beneficial owner to reply to a notice issued to the benamidar under sub-section (1) of Section 24 of the Act.”
The judgment recorded that under Section 24(1), the Initiating Officer may issue a notice to a person suspected of being a benamidar to show cause why the property should not be treated as benami property. Under Section 24(2), a copy of such notice must also be issued to the beneficial owner if his identity is known. Further, under the newly inserted Section 24(2A), both the benamidar and the beneficial owner, to whom a copy of the notice is issued, are entitled to furnish explanations or submissions within the specified period or within an extended period not exceeding three months.
The Court noted that while the amendment recognizes the beneficial owner’s right to respond, “what would be required to be seen is whether the beneficial owner has been called upon to reply to the notice under sub-Section (1) of Section 24 of the Act.” Upon examining the impugned notices, the Bench found that although they made reference to the beneficial owner and marked a copy to him, “there is nothing in the notice calling upon the beneficial owner to reply to the said notice.”
The Court stated, “Though the submission of Shri Thirumalesh, learned counsel for the respondents, is that there is no requirement to call upon the beneficial owner to reply to the notice in terms of Section 2A, and it was always available for the beneficial owner to reply to the notice, 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.”
Justice Govindaraj held, “It would be required for the revenue while issuing a notice under sub-Section (1) of Section 24 of the Act to the benamidar, 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 Bench observed that had such a procedure been followed, “this kind of a technical objection could not have been raised by the petitioner delaying the matter.”
The Court stated that “the order dated 30.07.2025 passed by respondent No.1 at Annexure-C and the order dated 26.08.2025 issued by respondent No.2 at Annexure-D, are quashed.” The Court directed that “the petitioner is permitted to reply to the notice under sub-Section (1) of Section 24 of the Act issued to the benamidar, which has been marked to the beneficial owner within 15 days from today.”
“if such reply is received by the Initiating Officer, the said reply shall be considered and necessary orders passed thereon, in terms of Section 24 of the Act. In the event of no reply being received within 15 days, i.e., on or before 15.10.2025, the Initiating Officer is free to proceed with the matter.”
“Initiating Officers are to henceforth, in any notice issued under sub-Section (1) of Section 24 of the Act to the Benamidar and marked to the beneficial owner, categorically state that the beneficial owner is also required to reply, submit explanation or submission within the time frame as that provided to the Benaminar,” and asked that “the above direction be brought to the notice of the Chief Commissioner, Income Tax Department, so that necessary instruction could be issued to the concerned officers.”
Advocates Representing the Parties:
For the Petitioner: Shri Gangadhar J.M., Advocate
For the Respondents: Shri M. Thirumalesh and Smt. D. Roopa, Advocates
Case Title: Shri Nara Suryanarayana Reddy v. Initiating Officer, Deputy Commissioner of Income Tax (Benami Prohibition) & Ors.
Neutral Citation: 2025: KHC-D:13506
Case Number: Writ Petition No. 107184 of 2025
Bench: Justice Suraj Govindaraj
