Reason To Believe Under Section 24 Benami Act Higher Than Reasonable Suspicion Under Section 35 BNSS: Delhi High Court Dismisses Writ Petition Against Benami Property Attachment
Deekshitha Sharmile
The High Court of Delhi Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar has held that, under Section 24 of the Prohibition of Benami Property Transactions Act, the requirement of “reason to believe” for an Initiating Officer is a higher standard than the “reasonable suspicion” test in Section 35 of the Bharatiya Nagarik Suraksha Sanhita, which permits arrest for alleged cognisable offences. Applying this, the Court upheld the show cause notice and provisional attachment of bank accounts of a courier service provider alleged to have facilitated benami transactions through bogus billing for a marketing company, finding that the officer’s belief rested on seized electronic records and statements and directing that the petitioner’s objections be pursued before the Adjudicating Authority, thereby dismissing the writ petition.
The petitioner is a proprietor in goods transport and courier services under the name of a courier firm, providing services since 2014 to a marketing company using a direct-selling model. On 20 September 2023, the tax authorities conducted a search under Section 132 of the Income-tax Act, 1961 at the premises of the marketing company and its directors. During the search, electronic data including an Excel sheet titled “Bogus Expense Employee-wise” were found, showing payments to entities, including the petitioner, under heads such as marketing, business promotion, services and commission, along with statements of directors and employees. According to the respondents, these entities were accommodation entry providers and returned cash to key individuals.
On the basis of this material, the Initiating Officer formed a view that several parties, including the petitioner, were benamidars and issued a show cause notice under Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988, followed by provisional attachment of bank accounts under Section 24(3) and (4) and notice by the Adjudicating Authority under Section 26(1). The petitioner, denying any bogus transactions, relied on a declaration from the marketing company and produced bank statements and ledgers, contending that services were genuinely rendered, that the Excel sheet mentioned a different individual, and that the officer lacked independent “reason to believe” as required under Section 24.
The Court first outlined the statutory framework under Section 24, stating: “Perusal of the above Section would show that for the purpose of issuing Show Cause Notice to a person under Section 24 (1) of the Benami Act, following are the preconditions: (1) There should be material in the possession of Initiating Officer indicating Benami transactions; (2) On the basis of such material, the Initiating Officer must have reasons to believe that any person is a Benamidar in respect of a property.” It added: “If above preconditions are fulfilled, the Initiating Officer is required to record reasons in writing for issuing a show cause notice under Section 24 (1) of the Benami Act.”
On the nature of judicial review, the Court recorded: “Whenever a notice issued by Initiating Officer under Section 24 (1) of the Benami Act is challenged, the Court will direct its attention to the material in possession of the Initiating Officer. This would be an objective inquiry and Court can ask as to what is the material in possession of the Initiating Officer. However, while entering into this inquiry, the Court would not go into the question of sufficiency or quality of the material in possession of the Initiating Officer.”
The Court then described the subjective element of the Initiating Officer’s belief: “The second aspect of the inquiry would be as to whether the Initiating Officer had reasons to believe that the petitioner is a Benamidar in response of a property. This part is subjective in nature and should be seen from the angle of Initiating Officer. The Courts cannot substitute their own wisdom with the logic and reasoning of Initiating Officer, though the Court can examine relevance of reasons vis a vis material seized, which persuaded the Initiating Officer to issue a notice under Section 24 (1) of the Benami Act.”
Explaining “reason to believe”, the Court noted: “The above definition clearly indicate the subjective nature of the expression.” It contrasted this with criminal procedure, observing: “In Section 35 of BNSS, a police officer is empowered to arrest a person on reasonable suspicion, which may lead him to believe a person to be involved in a cognizable offence. Whereas a reasonable suspicion may be a reason for a police officer to believe criminal involvement of a person under BNSS, the Benami Act makes the precondition more stringent. In Section 24 of the Benami Act, only on the basis of some material in his possession, the Initiating Officer can form a belief of a person being Benamidar in respect of a property. Standard of basis of belief is on higher pedestal in the Benami Act than the belief under BNS and BNSS (earlier IPC and Cr.P.C.) but it falls short of ‘prima-facie case’ which is a standard for a Judicial or Quashi Judicial Authority for proceeding against a person under respective laws. Therefore, Section 24 (1) of the Benami Act does not burden an Initiating Officer to first work out a prima-facie case before issuing a show cause notice or give opportunity of hearing and cross examining the witnesses to notice.”
On the material available, the Court recorded: “In the present case, the Initiating Officer was having in his possession Excel sheets containing the details of the bogus transactions and their amounts against certain names including one Shyamsundar, which corroborated the statements of beneficial owners. Therefore, in the present case first condition is satisfied.” At the same time, it clarified: “As we are considering the validity of show cause notice, we cannot enter into the question of standard of proof in accordance with Bharatiya Sakshya Adhiniyam, 2023. It is enough that the Initiating Officer seized of some material and on the basis of such material he formed an opinion.”
Dealing with the specific questions raised, the Court stated: “In question no.1, the petitioner has raised doubt as to whether the case of petitioner falls within the definition of Benami transaction as defined under Section 2 (9) of the Act. We are of the opinion that in show cause notice, the Initiating Officer has given reasons as to how it is a case of Benami transaction and at this initial stage, this Court would not like to enter into the complexities of the merit and evidence of the case for the purpose of determination of a Benami transaction.”
On the second question concerning approval, it observed: “On the Second question raised above by learned Counsel for the petitioner, there is no doubt that Section 24 (3) of the Benami Act provides for previous approval of the Approving Authority in writing for attaching provisionally the property held Benami. But there is no statutory requirement that copy of such approval by the Approving Authority should be supplied to Benamidar or Beneficial owner alongwith attachment order.”
Regarding identification and the scope of review, the Court held: “Perusal of the Show Cause Notice and the attachment order reveals that identity of the petitioner was revealed not only through the contents in Pendrive but also in the statement of beneficial owners namely, Sh. Deepak Choudhary and Sh. Gautam Bali.” It concluded: “After considering the rival submissions we are of the opinion that the Initiating Officer has written in detail as to what are the reasons to believe that the petitioner is a Benamidar. This opinion cannot be tinkered with by the Court specially when the petitioner has an efficacious remedy before Adjudicating Officer under Section 26 of the Benami Act.”
The Court directed: “We are of the opinion that it would be open for the petitioner to raise this plea before the Adjudicating Authority, who is empowered to revoke the attachment order under Section 26 of the Benami Act. Here, we deem it appropriate to say that any observations of this Court in this order shall not affect the adjudicating process and the Adjudicating Authority shall be at liberty to form its own opinion on all the issues raised by the petitioner before it. Accordingly, we find no substance in the writ petition. The same is dismissed.”
Advocates Representing the Parties
For the Petitioners: Mr. Nitin Kanwar, Ms. Parul Kanwar, Mr. Rajiv Kumar, Mr. Dushyant Nayak, Mr. Shivam Jain, Mr. Jitendra Kumar, Advocates
For the Respondents: Mr. Shlok Chandra, Sr. Standing Counsel, Ms. Naincy Jain, Jr. Standing Counsel, Ms. Madhavi Shukla, Jr. Standing Counsel, Advocates
Case Title: Shyamsundar Sharma v. ACIT/Initiating Officer, Benami Prohibition Unit-2, Delhi & Anr.
Neutral Citation: 2025:DHC:10372-DB
Case Number: W.P.(C) 17000/2025 CM APPL. 69879/2025
Bench: Justice V. Kameswar Rao, Justice Vinod Kumar
