In a significant ruling under the Prohibition of Benami Property Transactions Act, the Madras High Court has partially allowed criminal revision petitions filed in a high-value cash deposit case linked to demonetisation. The Court set aside proceedings against a woman partner of a firm, while allowing the prosecution to continue against the firm and its managing partner.
The decision was delivered by Justice Sunder Mohan on January 19, 2026.
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Background of the Case
The case arose from an investigation by the Income Tax Department into alleged benami transactions involving a partnership firm based in Salem. According to the prosecution, the firm deposited ₹68.71 crore in cash after demonetisation in 2016–17.
The department claimed:
- The firm had shown very low income in previous years
- The sudden spike in deposits was unexplained
- Fake bills and transport documents were allegedly used
- The funds were suspected to be benami in nature
Based on this, a criminal case was filed under Section 53 of the Prohibition of Benami Property Transactions Act, 1988.
Three accused were named:
- The partnership firm
- Its Managing Partner
- The woman partner (wife of the Managing Partner)
All three sought discharge from the case, which was earlier rejected by the trial court.
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Arguments Before the High Court
For the petitioners, senior counsel argued that:
- The woman partner was only a “dormant partner”
- She was not involved in day-to-day business
- No specific role was attributed to her in the complaint
- The law requires clear averments before fixing criminal liability
It was also argued that:
- The deposits were business proceeds
- The prosecution failed to identify the real “beneficial owner”
- Past income figures alone cannot prove criminal intent
The prosecution, however, countered that:
- The firm’s earlier turnover was too low to justify such deposits
- Fake transport bills were used
- The Managing Partner controlled all transactions
- The firm still owed bank dues while claiming huge cash reserves
Court’s Observations
The High Court examined the scope of vicarious liability under the Benami Act and referred to multiple Supreme Court rulings.
The Court observed:
“Merely being a partner is not sufficient to attract criminal liability unless it is clearly stated that the person was in charge of and responsible for the conduct of business.”
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On the woman partner’s role, the Court noted:
- She had replied to the show-cause notice stating she was not involved in business affairs
- The complaint did not explain her role
- No material showed she controlled or managed transactions
The Court relied on Supreme Court judgments which hold that criminal liability cannot be presumed and must be specifically pleaded and proved.
However, in the case of the Managing Partner, the Court took a different view. It held that:
- He had signed financial records
- He controlled business operations
- His involvement could not be ruled out at this stage
“Whether the deposits were genuine or benami is a matter for trial,” the Court observed.
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Final Decision
The High Court ruled as follows:
- Proceedings against the woman partner were quashed
- Discharge plea of the firm and Managing Partner was rejected
- Trial to continue against them under the Benami Act
- Authorities may re-initiate proceedings against the woman partner only if fresh evidence emerges
The Court also clarified that the prosecution could invoke Section 319 CrPC in future if material surfaces showing her active involvement.
Case Title: R. Kalaivani vs Deputy Commissioner of Income Tax
Case Numbers: Crl.R.C. Nos. 872 & 956 of 2023
Decision Date: 19 January 2026
