Introduction:

In a landmark judgment that strengthens the procedural rights of individuals under the Prohibition of Benami Property Transactions Act, 1988, the Karnataka High Court in Nara Suryanarayana Reddy v. Initiating Officer & Others [Writ Petition No.107184 of 2025; 2025 LiveLaw (Kar) 356], issued significant directions ensuring transparency and fairness in the issuance of notices under Section 24 of the Act. The ruling by Justice Suraj Govindaraj clarifies that henceforth, every notice issued by an Initiating Officer under sub-section (1) of Section 24 of the Act to a Benamidar, and marked to the beneficial owner, must specifically state that the beneficial owner is also required to reply or furnish an explanation within the same timeframe as provided to the Benamidar. The Court emphasized that mere marking of a copy of the notice to the beneficial owner does not meet the standards of natural justice and procedural fairness. This decision arose from a writ petition filed by Nara Suryanarayana Reddy, the beneficial owner of a property, who challenged proceedings under the Benami Act on the ground that he was not given a proper opportunity to respond to a notice which, though copied to him, failed to explicitly invite his reply.

Arguments of the Petitioner:

The petitioner, represented by Advocate Gangadhar J.M., asserted that the proceedings initiated by the Initiating Officer were fundamentally flawed and violative of the principles of natural justice. He contended that though a notice under Section 24(1) of the Prohibition of Benami Property Transactions Act, 1988, was issued to the Benamidar and a copy was marked to him as the beneficial owner, the notice did not specify that he was required or permitted to submit any explanation or response. The petitioner argued that this omission had effectively deprived him of his statutory and constitutional right to defend his ownership interests and to participate in the adjudicatory process. The failure to call upon him to reply, he claimed, amounted to an implicit exclusion of his right to be heard before adverse orders were passed.

The petitioner further contended that Section 24(2) of the Act requires that when the identity of the beneficial owner is known, a copy of the notice must be marked to him, and by necessary implication, such marking serves no purpose unless accompanied by an explicit opportunity to submit his response. He submitted that the legislative intent behind forwarding the notice to the beneficial owner was to afford him the same procedural safeguards as the Benamidar, as the ultimate consequences of the proceedings directly affect his proprietary and civil rights.

Additionally, the petitioner relied upon the recent amendment brought by the Prohibition of Benami Property Transactions (Amendment) Act, 2024—specifically the insertion of sub-section (2A) in Section 24, which came into effect on October 1, 2024. Under this provision, both the Benamidar and the beneficial owner to whom a copy of the notice has been issued are required to furnish their explanation or submission within the period specified in the notice, or within such extended time not exceeding three months. The petitioner argued that the amended law recognized the beneficial owner’s right to be heard and imposed a correlative duty on the revenue authorities to clearly communicate this opportunity in the notice itself. By failing to do so, the Initiating Officer had not only ignored the statutory framework but also violated the doctrine of audi alteram partem—a foundational principle of administrative fairness.

Thus, the petitioner prayed that the proceedings initiated against him be quashed and that the Court lay down clear guidelines mandating the authorities to expressly inform beneficial owners of their right and obligation to respond to such notices.

Arguments of the Respondents:

The respondents, represented by Advocates M. Thirumalesh and D. Roopa, defended the actions of the Initiating Officer, arguing that the procedure followed was fully compliant with the statutory requirements of the Benami Transactions Act. They maintained that there was no obligation under the Act, prior to the 2024 amendment, to expressly call upon the beneficial owner to reply to a notice issued under Section 24(1). The law, they contended, only required that when the identity of the beneficial owner was known, a copy of the notice had to be marked to him as per Section 24(2). Once a copy was marked, it was incumbent upon the beneficial owner to take necessary action if he wished to make any submissions or explanations.

The respondents further argued that the petitioner could not claim ignorance of the notice or lack of opportunity when he had in fact received a copy of the same. The failure to respond within the time frame, according to them, was due to his own negligence and not due to any procedural deficiency on the part of the revenue authorities. The respondents also asserted that since the Benamidar had already replied to the notice, the petitioner’s participation was not indispensable at that preliminary stage, and that the proceedings were only investigative in nature and not determinative of final rights.

It was also argued that the 2024 amendment inserting Section 24(2A) should not be retrospectively applied to notices issued prior to its enactment. They contended that since the present notice had been issued earlier, the petitioner could not rely upon the new provision to allege procedural illegality. The State counsel also maintained that the essence of natural justice had not been violated, as the petitioner could have suo motu filed his explanation once he received a copy of the notice. The responsibility, they asserted, lay with the petitioner to safeguard his own interests.

Court’s Judgment:

Justice Suraj Govindaraj, after considering the submissions of both sides and analyzing the relevant statutory provisions, delivered a detailed and forward-looking judgment. The Court observed that the purpose of Section 24 of the Benami Property Act is to ensure procedural fairness and to give both the Benamidar and the beneficial owner a fair opportunity to explain their respective positions before any order is passed.

The Court began by analyzing Section 24(1), which empowers the Initiating Officer to issue a notice to a Benamidar if he has reason to believe that a property is held benami. Sub-section (2) mandates that a copy of the notice be forwarded to the beneficial owner if his identity is known. The newly inserted sub-section (2A), effective from October 1, 2024, now explicitly provides that both the Benamidar and the beneficial owner are entitled to furnish explanations or submissions within the prescribed period.

The Court noted that the introduction of sub-section (2A) was not merely procedural but declaratory in nature, designed to remove ambiguity and reinforce the right of the beneficial owner to participate in the proceedings. It emphasized that even before this amendment, the principles of natural justice required that when the beneficial owner’s identity was known and the property directly affected his rights, he must be given a clear opportunity to present his case.

Justice Govindaraj observed:

“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 Court held that such practice was insufficient. It reasoned that the act of merely marking a copy to the beneficial owner, without explicitly inviting his response, creates procedural ambiguity and opens the door to unnecessary litigation. The Court held that the revenue authorities must avoid such technical lapses by clearly specifying in the notice itself that the beneficial owner is also required to respond within the stipulated time.

The Court further observed:

“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 Court concluded that since the impugned notice failed to contain any such express direction to the beneficial owner, the petitioner’s grievance was justified. It therefore quashed the impugned proceedings to the extent that they affected the petitioner’s rights without due process. However, rather than setting aside the entire proceeding on technical grounds, the Court adopted a pragmatic approach by directing that the petitioner be granted an opportunity to file his reply to the notice within 15 days from the date of the order.

Justice Govindaraj further issued a general directive to all Initiating Officers under the Benami Property Act, stating that henceforth, every notice issued under Section 24(1) must categorically state that the beneficial owner, if identified and marked in the notice, is required to reply, submit explanation, or furnish submissions within the same timeframe provided to the Benamidar. The Court reasoned that this directive would prevent procedural confusion, uphold natural justice, and expedite proceedings by eliminating technical objections in future cases.

The judgment thus serves as an important precedent ensuring that both Benamidars and beneficial owners are treated as integral participants in proceedings under the Benami Property Act. It reiterates the judiciary’s consistent stance that adherence to due process is not a mere formality but a substantive requirement safeguarding fairness and legitimacy in administrative actions.

Ultimately, the writ petition was allowed, and the petitioner was permitted to file his reply within 15 days. The Court’s ruling not only provided relief to the petitioner but also established a standard protocol for all future notices, ensuring that beneficial owners are explicitly informed of their rights and responsibilities in proceedings under the Benami Property Transactions Act.