High Court Quashes Bank Account Attachments for Lack of “Benami” Evidence

ORDER

1. The present appeal has been filed against the order dated 16.01.2025 of the Ld. Adjudicating Authority (Ld. AA) wherein it was held that the Initiating Officer (IO) could not satisfactorily prove that M/s Surge Ahead Solutions Pvt. Ltd. and M/s Bajaj Capital Insurance Broking Ltd. were the Benamidar and the Beneficial Owner respectively. The following properties were also held not to be benami properties as alleged by the IO:

2. A reference F. No. DCIT BP Unit-2/Benami/Bajaj ‘Group/2024-25 dated 08.07.2024 was made by the Initiating Officer, BP Unit-2, Mumbai u/s 24(5) of the Prohibition of Benami Property Transaction Act, 1988 (PBPT Act) wherein it was claimed that M/s Surge Ahead Solutions Private Limited was the Benamidar and M/s Bajaj Capital Insurance Broking Limited was the Beneficial Owner. The above mentioned properties were attached as Benami properties.

3. The facts of the case revealed the modus operandi of the operation. IRDAI regulations prescribe a limit on the maximum amount of commission payments that can be paid by the insurance companies to the insurance intermediaries for procuring and soliciting of insurance policies. Any entity used by the insurance intermediaries to receive the Over Riding Commission (“ORC”) payments on behalf of insurance intermediaries from insurance companies are termed as Nominees’. So, Insurance companies in connivance with insurance intermediaries used certain entities which are nominees of the Insurance intermediaries to receive the excess commission over and above the limit set by the IRDAI. Surge Ahead Solutions Pvt. Limited (herein after referred as “Surge”) follows the above modus. It had acted as nominee of Bajaj Capital Insurance Brokers Limited (herein after referred as “BCIBL”) and received huge payments from insurance companies and Middle Layer Business Entities (MLBEs) in the form of ORC from the insurance companies through MLBEs. From the search operation and evidences gathered therein it has been observed that receipt of “Surge” from the MLBEs or insurance companies in the guise of Marketing expenses’ is nothing but ORCs payments which was further transferred to the Bajaj Group companies. It was further found that the directors of “Surge” had acted only on directions of Bajaj group and their conduct on record again and again had established that the “Surge” was benami entity of Bajaj group. Evidences gathered during the search like common shared office premise, common employees working for the whole group, full financial control over affairs of “Surge” by Bajaj group even authorized signatories for financial transaction were with the shareholders of Bajaj group, the directors of “Surge” (who were earlier employee of Bajaj group) uses email domain of the Bajaj group only and email communication and raising invoices with the insurance companies contains discussion of ORCs on behalf of Bajaj group etc. depicted that “Surge” is benami entity of Bajaj group and was being used for receiving ORCs on behalf of the Insurance Broker company of the Bajaj group i.e. BCIBL. In a nutshell, the “Surge”, the Benamidar entity, was used for the above explained arrangement to route the ORC which was otherwise barred by the IRDAI guidelines to the Insurance broker i.e. BCIBL through pass through entities (MLBEs) floated by the Insurance companies. The commission as per the IRDAI regulations (Commission as per Section 194D) is received by the BCIBL from insurance companies and the excess commission over and above the IRDAI limits (ORC) is received by “Surge” from insurance companies. Further, majority of the payments received by Surge is then passed on to Bajaj Capital Limited (herein after referred as “BCL”) and Bajaj Capital Financial Services Ltd (herein after referred as “BCFSL”) in guise of marketing.

4. It was also revealed that the “Surge” was operating from the same office premise and it was merely separated through a partition from the office of BCL/ BCFSL. The so-called directors of the company, Mr. Kuldeep Singh Rana and Mr. Vikas Malhotra had cubicle cabin inside the office of BCL and BCFSL office space. This shows that the directors of “Surge” are primarily employees of Bajaj group. The majority shareholder of “Surge” is Mrs. Deepa Ahuja who is an NRI. It was also found that she has never visited the office of the company and had never handled business affairs of the company. It was also found that she was not even authorized to make payments. Based on seized material and statement recorded during the search and post search, the following observation have been made. It was revealed that the directors of Bajaj Group were forced to resign and made directors of “Surge”. The directors are not giving approval for release of payments and all invoices are approved by the Bajaj group. It was also found that the director of “Surge” looks after the personal account of Bajaj family and make payment as and when directed by the Bajaj family. It was found that the so-called directors of “Surge” were not authorized to make payments more than 1 lakh till November 2022. Further, it was found that only key persons of Bajaj Group were authorized to make payment beyond that. The resolution passed by “Surge” for the above authorization is also on the direction of Bajaj group. This shows that the directors were not the key decision makers of the company and were only dummy directors who acted as per the instruction of key persons of Bajaj group. The Directors of “Surge” have never attended any Board Meeting for “Surge” but signed the documents on direction of Bajaj group only. Even the digital signature was given to director by treasury department of Bajaj Capital Limited for releasing fund up to 1 Lakhs. It was also found that the director of “Surge” looks after the personal account of Bajaj family and make payment as and when directed by the Bajaj family. It was found that the so called directors of “Surge” were not authorized to make payments more than 1 lakh till November 2022.

5. Further, it was found that only key persons of Bajaj Group were authorized to make payment beyond that. The resolution passed by “Surge” for the above authorization is also on the direction of Bajaj group. This shows that the directors were not the key decision makers of the company and were only dummy directors who acted as per the instruction of key persons of Bajaj group. The Directors of “Surge” have never attended any Board Meeting for “Surge” but signed the documents on direction of Bajaj group only. Even the digital signature was given to director by treasury department of Bajaj Capital Limited for releasing fund up to 1 Lakh.

6. The IO examined the evidences and recorded statements under oath and concluded that the “Surge” is a Benami entity of Bajaj Group and transactions are mere arrangement between Benamidar and Beneficial Owner as per the Act.

7. The Ld. AA concluded that the burden of proof was not satisfactorily discharged by the IO as per of the requirements of the PBPTA, 1988 and that the case of the IO largely depended on the irregularities or illegalities of certain transactions of the incumbent parties. The Ld. AA held that the record of the property details varied from the show-cause notices to the order under section 24(3) and the order under section 24(4) of the PBPTA, 1988. This was evident from the fact that while the IO included five bank accounts of M/s Surge Ahead Solution Private Limited in the attachment order, he was unaware of the actual status of these accounts at the time the order was issued. It was discovered during the proceedings that three of these accounts had already been closed prior to the issuance of the attachment order by the IO. Hence, the Ld. AA did not hold the said property as benami.

8. The Ld. Counsel for the Appellant argued that the Ld. AA failed to consider that that “Surge” was operating from the same office premise and it was merely separated through a partition from the office of BCL/ BCFSL. The directors of the company, Mr. Kuldeep Singh Rana and Mr. Vikas Malhotra had cubicle cabins inside the office of BCL and BCFSL office space. Thus, the directors of “Surge” are primarily employees of Bajaj group. Moreover, the majority shareholder of “Surge” as on date is Mrs. Deepa Ahuja who is an NRI who never visited the office of the company and had never handled business affairs of the company. She was not even authorized to make payments. The directors of Bajaj Group were made to resign and installed as directors of “Surge”. They cannot give approval for release of payments and all invoices are approved by the Bajaj group. Vikas Malhotra, a director of “Surge” looked after the personal account of Bajaj family and make payment as and when directed by the Bajaj family. Directors of “Surge” were not authorized to make payments of more than 1 lakh till November 2022. That only key persons of Bajaj Group were authorized to make payment beyond the said threshold. Moreover, the Directors of “Surge” had never attended any Board Meeting for “Surge” but signed the documents on the directions of Bajaj group only. Even the digital signature was given to the director by treasury department of Bajaj Capital Limited for releasing fund up to 1 Lakhs. The Sale Purchase register, Books of Accounts and cheque book of the “Surge” is maintained/kept by Bajaj Group. Also, the payroll and salary payments to employees of “Surge” is handled by the HR department of Bajaj group. Even though the employee details of “Surge” are also maintained with Bajaj Group.

9. Further, Ld. AA failed to observe that the payments and receipts of Surge were being looked after by CFO of BCIBL. The liaising team of the Bajaj Group only interacted with representatives of Insurance companies in place of “Surge” and prepared all agreement and later to be merely signed by Surge. Infact, certain expenses of Bajaj group are billed to and paid by “Surge”. The day-to-day affairs are taken care of by employee of Bajaj Group. Employees were shifted from Bajaj group to “Surge” only for salary disbursement purpose while the work profile of the employee was same for both Bajaj Group and “Surge”. The E-mail domain of Bajaj group “@bajajcapital.com” was used by Shri Kuldeep Singh Rana and Vikas Malhotra, the directors of “Surge”. Major payments received by Surge were transferred to Bajaj Capital Limited (BCL) and Bajaj Capital Financial Services Limited (BCFSL) which are part of the Bajaj group. During F.Y. 2016-17 to F.Y. 2022-23 an amount of Rs.387.87 crores was transferred to BCL and BCFSL.

10. The appeal was contested by the respondents M/s Surge Ahead and Solutions Pvt Ltd. & Anr. & M/s Bajaj Capital Insurance Broking Ltd. and submitted that they are not the Benamidar and the Beneficial owners respectively. It was further submitted that keeping in view the facts alleged in the present appeal, the provisions of Section 2(9)(A) of the PBPT Act, 1988 are not attracted as the alleged transactions are not covered under the definition of Section 2((9)(A) of the PBPT Act, 1988.

11. We have heard the arguments by both the parties and perused the material on record.

The primary legal issue present before the Tribunal is whether the IO has successfully discharged the statutory burden upon him under Section 2(9) read with Sections 23 and 24 of the PBPTA, 1988, in order to establish that M/s Surge Ahead Solutions Pvt. Ltd. and M/s Bajaj Capital Insurance Broking Ltd. are the benamidar and beneficial owner respectively and whether the attached bank accounts are benami properties.

12. On examination of the materials on record, we find that the case of the IO rests upon the fact that operational, managerial, and financial affairs of “Surge” were controlled by the Bajaj Group and that the two entities also shared common office premises and employees and had a centralized payroll and HR functions and that the directors of “Surge” practiced limited financial control and used the email domain of the Bajaj Group, routing funds to Bajaj Group entities. The IO also alleged that this nexus between the benamidar and the beneficial owner aided them in violating of IRDAI guidelines and eventually ORC.

13. While the allegations of the IO supplemented by evidentiary document may give rise to suspicion regarding regulatory or tax compliance, they do not, by themselves, satisfy statutory requirements of a benami transaction as defined under Section 2(9)(A) of the PBPT Act, 1988.

14. Section 2(9)(A) of the PBPT Act, 1988 reads as follows:

“2. Definitions.-

(9) “benami transaction” means-

(A) a transaction or an arrangement-

From the aforesaid provision, it is clear that a transaction held to be benami only when the following conditions are fulfilled:

On perusal of the facts and after due consideration of the oral arguments from both the parties, it is seen that none of the ingredients of Section 2((9)(A) are fulfilled.

15. The Impugned Order is perused. The Adjudicating Authority has taken the consideration of the basic provisions as enumerated in Section 2(9)(A) of the PBPT Act, 1988, the entire facts and circumstances, the submissions of the parties and the materials available on record. The Adjudicating Authority has categorically discussed the case of the parties. It is felt necessary to reproduce the relevant portion of the Impugned Order, which is as follows:

” 6.14…..However, the Initiating officer could not demonstrate clearly that the alleged benamidar was regularly transferring funds to the beneficial owner. It is pertinent to mention here that my jurisdiction is limited to the transactions related to the PBPT Act and in view of detailed discussion in preceding paras the receiving money as overriding commission in the account of the benamidar cannot be treated as benami transaction. The case of the Initiating Officer is largely depending on the irregularities or illegalities of certain transactions of the incumbent parties. This Authority has no jurisdiction to examine such allegations and to make any findings on the same. Such aspects are always open for examination by the Insurance Regulatory Authority or any other Authority and the findings in this order under the PBPT Act shall have no bearing on such proceedings and this order is being passed without prejudice to any such matters.”

16. The Adjudicating Authority finally concluded that:

“6.15. It is hereby concluded that the burden of proof has not been satisfactorily discharged by the Initiating Officer as per of the requirements set forth under the provisions of the PBPT Act. The matter before me is to assess whether the case falls within the scope and ambit of the PBPT Act. The allegations raised by the Initiating Officer concerning overriding commission and any other violations, if applicable, do not fall within the purview of these proceedings and remain subject to adjudication by the relevant authorities in accordance with the law. This order shall have no effect on such matters.”

On the basis of the above, the Adjudicating Authority held that the property at Para-1 above is not benami property and revoked the attachment order under Section 24(4) dated 27.06.2024 issued by the Initiating Officer, Benami Prohibition, Mumbai-2.

16.1 Moreover, the IO has failed in identifying any specific property which was acquired by or held in the name of “Surge” for which alleged consideration was provided by the said beneficial owner. There is also no evidence on record to establish that the alleged benami properties were being held for the immediate or future benefit of M/s Bajaj Capital Insurance Broking Ltd.

17. The provisional attachment order of the IO also suffers from fundamental infirmities as well. The IO by the said PAO sought to attach bank accounts, however, he falls short in identifying the original benami property that may have been transfer in favour of the “Surge” for the immediate or future benefit of the Bajaj Group or even its converted form, or its traceable proceeds. In fact, the IO attempts to treat bank balances as “equivalent value” assets, which is not a concept under the statutory scheme of the PBPT Act, 1988.

18. We find that the Ld. Adjudicating Authority correctly held that the property in question is not benami property and that no benami transaction took place between the parties. Therefore, the IO demonstrated non-application of mind and erred by attaching five bank accounts out of which three bank accounts had already been closed prior to the issuance of the attachment order.

19. It is also noted that the IO has relied on investigations conducted by the Income Tax Department and that no independent inquiry appeared to have been undertaken by him under the PBPT Act, 1988. Even if it established that the Bajaj Group practiced certain degree of control and influence over “Surge”, the statutory requirements of section 2(9)(A) under the PBPT Act, 1988 need to be fulfilled. The PBPT Act, 1988 cannot be invoked as a substitute to hold the parties accountable for alleged violations of IRDAI regulations or any fiscal statutes. The respondents can be accused of misusing regulations in order to circumvent the corporate structuring, but this is not a case of benami transaction.

20. In the light of the above discussion, we find that the IO has failed to make out a case under section 2(9)(A) of the PBPT Act, 1988. Therefore, we find no reason to cause interference in the order of the Ld. AA. The appeal accordingly fails and is dismissed.