CRITICAL APPRAISAL OF THE RELATED TO BENAMI TRANSACTIONS
BY Raghu Raman C.S.*
In this article, I propose to take up a critical examination of the “Law relating to Benami Transactions”. This topic can be discussed with reference to the period both before and after the passage of the Benami Transactions (prohibition) Act, 1988. (hereinafter known as ‘the Act’)
The Parliament, in the preamble of the Act, declared it to be “an Act to prohibit benami transactions and to prohibit the right to recover property held benami” coupled with the object of delegating powers to the Central Government to frame the relevant rules for carrying out the objectives of the Act.
An earlier Ordinance was repealed with the passage of the Act. The Ordinance was promulgated to prevent tax evasion and also to curb the circulation of black money through such transactions.
It appears that the Bill, introduced to replace the Ordinance, was passed through the Parliament in great haste without thoroughly discussing the various provisions that were thought desirable to be incorporated in the Act.
The Bill was introduced on the recommendations of the Law Commission given in a report submitted to the Government after examining the earlier Ordinance referred to the commission. Finally, the Bill was placed before the Parliament on 31st August, 1988 and was immediately passed.
The Parliament, when it repealed the Ordinance and replaced it with the Act, though it desirable not only to prohibit the right to recover property held benami but also thought it fit to put an end to the general practice of the public in entering into benami transactions.
The Legislature adopted a multi-dimensional strategy to put an end to the hitherto widely practice of entering into benami transactions through the stringent provisions of the Act.
First, the Act specially laid down that, from 5th September, 1988
* Sri Raghu Raman C.S Full-Time Lecture in Law , 3-6-215 , Pendikanti Law college , Himayat Nagar , Hyderabad – 500 029.
1. Received the assent of the President on 5th September , 1988.
2. See the ‘Preamble’ of the Act.
3. Ref. Sec. 8 of the Act – “power to make rules”.
4. The Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988.
5. Ref. Sec. 9 (1) of the Act.
6. One of the many reasons for the promulgation of the Ordinance – Ref. Para 1.7(c) Chapter 1 of 5th Report of Law Commission, Delhi.
7. 130th report of the Law Commission of India, Delhi
8. Submitted on 14th Augutst, 1988.
9. Referred to the Commission on 22nd July,1988.
10. The Original Ordinance did not contain such general prohibition.
SUPREME COURT JOURNAL
onwards, “no person shall enter into benami transaction.”11 Next, the act of entering into benami transactions was declared to be an offence. 12 Third, the right to recover property held benami was denied to the real owner. 13 Lastly, the Central Government was given power to acquire property held benami by prescribing the relevant rules for such acquisition. 14
It is both a penal 15 disqualifying 16 and also an enabling statute. It is penal in the sense that it conferred powers on the court to punish any person who enters into benami transactio. It is a disqualifying statute in the sense that it does not allow recovery of property held benami. Finally, it is an enabling Act because it confers powers on the “state” to acquire property held benami 17 even without payment of any compensation. 18
Nine Sections were included in the Act. The most important substantive provisions were incorporated in the three sections 19 of the Act and therefore, naturally, these provisions were brought into force with immediate effect20 but not with retrospective effect. Retropective effect cannot be given to these provisions because of the very nature of them. 21
The remaining provisions of the Act were deemed to have come into force on the date of the promulgation of the Ordinance22 prior to the Act. In other words, a few months of retrospective effect was given to these provisions of the Act. 23
Law of benami transactions before 1988:
A critical examination of this topic requires the study of past legal History of these transactions.
The practice of entering into benami transactions was not a new practice in society. It was a very old practice among both the Hindus and the Muslims. It was known as “Furzee” among Muslims.
“Benami” is a Persian word. Translated into English it means ‘without name’. 24
“Benami transaction was known to be “any transaction in which property was purchased or transferred in the name of one person with consideration
11. Ref. Sec. 3(1) of the Act.
12. Sec. 3(3) of the Act.
13. See Sec. 4 of the Act.
14. Section 5 of the Act.
15. Mithilesh Kumari v. Prem Behari Khare.
(AIR 1989 S.C. 1247)
16. See Kumari’s case.
17. Section 5(1) of the Act.
18. Section 5(2) of the Act.
19. Sections 3, 5, 8 of the Act.
20. On 5th Sept., 1988 – Ref. Sec. 1(3) of the Act.
21. See Kumari’s case.
22. 19th May, 1988 – Ref. Sec. 1(3) of the Act.
23. Deemed to have come into force a few months earlier than the other provisions.
24. ‘Be’ means ‘without’ and ‘nam’ means ‘name
2] CRITICAL APPRAISAL OF THE VAW RELATING TO BENAMI TRANSACTIO
Paid by another person, 25 The definition in the Act26 more or less, conveys similar meaning
Prior to 1988, benami transactions were not prohibited but were recognized by law , ‘Two decision of the Supreme Court 27 can be refereed to.
In the first28 of the two cases cited above , the Apex Court categorically stated29that ’transaction which are called benami are lawful and not prohibited, ‘The importance of this case must also be stress ed for an analytical discussion of the provisions of Sec.66 of the Code of Civil procedure, 1980 because it was again discussed by the Apex Court in he latest decision30 after the repeal31 of that Section by the Act
In the second case,32 it was pointed out that’ we must remember that benami transactions are common in India and have always been recognised . The are entered into for a variety of reasons and the benamidar holds the property in trust for his principal’. 33
From the beginning, people in India were in the habit of entering , into two varieties of benami transactions. They were described as Tripartite Benami Transaction’ and Bipartite Benami Transaction’. The former was known to be the ‘real benami transaction ‘while the latter was only a ; Sham’ but was loosely referred to as ‘ Benami transaction,’
The Apex Court as far back as 1957, recongnised them and the same thing34 was reiterated in 1980 35 when it was pointed out that ‘where a person buys property with his own money but in the name of another person, without any intention to benefit such other person, the transaction is called benami, in that case, the contributed holds the property for the benefit of the person who has contributed the purchase money and he is the real owner . The second case, which is loosely termed as a benami transaction is a case where a person who is the owner of the property executes a conveyance in favour of another person without the intention of transferring the Title to the property thereunder. In this case, the transferor continues to be the real owner.
The difference, as stated by the Apex Court, lies ‘ in the fact that whereas in the former case there is an operative transfer from the transferor to the transferee though the transferee holds the property for the benefit of_
25.It generally involves an inter-action among three persons, namely the real owner, the
benamidar and the transferor. [Tripartite benami Transacion]
26.See Section 2[a] of the Act
27.Girihanandinin v Brijendra Narain Chowdary [AIR 1967 S.C. 1124] & Kedar v,
Prahlad Rai [AIR1960S.C.. 213]
29.As per Hon’ble Justice K,N, Wanchoo , J.C. Shan and R,S, Bachawat.
30. P.V. Sankarkurup v Leelavathy Namblar [AIR 1994 S.C. 2694]
31.Sec.66 of the code of civil prodedure , 1980 was repealed by Sec .7 of the Acr
32. Kedar’s case
33.As per Hon’ble Justices S.R. Das M.Hidaytullah and K,C. Das Gupta
34.Meenakshi Mills Ltd .,Income –Tax Commiissioner, [AIR 1957, S,C,49]
35.Bhim Singh [Dead] LR& Another v , Kan Singh, [AIR 1980 , S,C, 727]
the person who contributed the purchase money in the latter case, there is no operative transfer at all and the title rests with the transferor notwithstanding the execution of conveyance.’
‘One Common feature’. However, in the both these cases, is that the legal title is divorced from ostensible title and they are vested in different persons’ was a very significant and important observation of the Apex Court.36 The true nature of benami transaction was judicially recongnised by the Court through this observation
The benamidar holds the property in trust for the real owner. The real owner did not wish to confer any beneficial interest in the property on the benamidar. The benamidar only enjoys legl title and can enforce it against any person except the real owner . The privy council37 held that ‘a benamidar can sue in his name to recover immovable property vested in him as benamidar’.
The benamidar holds the property only as an ostensible owner but not as a real owner . The real owner can assert his title by a suit subject only to few exceptions.
The exceptions are given below;
a] The real owner is precluded from asserting his title if the property was already transferred by the benamidar for value without notice to the real owner and the transferee also has no notice that the property was held benami.
B] Where the real purpose of the transaction was to defraud the creditors, the real owner cannot assert his title against the benamidar if he succeeds in his fraud. But , he can assert him title. If he fails in his attempts.
C] The real owner is not permitted to assert his title when the benami purchaser was certified to be the purchaser by the Court in a sale held under the decree of the Court or in any proceedings for recovery of arrears of Revenue.
D] Allowing the real owner to claim the property is against public policy,
Position after the introduction of the Act.
Sweeping changes were brought about by completely changing the earlier law relating to benami transactions.
The two principal objectives38 of the Legislation were to ‘completely prohibit benami transactions’ and to declare the benamidar as the absolute owner, by denying the real owner39 by denying the real owner the right to recover property subject only to a few exceptions in both the circumstances.
36.As per Hon’ble Justices P.N. Shinghal and E.S. Venkataramaiah .[Bhim Singh’s Case]
37.Gurnarayan v Sheolal [191946 I.A.I]
38. See the ‘Preamble ‘ of the Act
39.Ref, Mithileshkumarl’s case.
CRITICAL APPRAISAL OF HE LAW RELATING TO BENAMI TRANSACTIONS
We have to examine how far these objectives were sought to be realized through the stringent provisions of the Act
First , the Act specifically laid down , towards that end, that ‘ no person shall enter into benami transaction,’ 40It is an expressly forbidden by Statute and hence illegal,. Still a person may enter into such transaction , on defiance of law, at his peril, unless the transaction is covered under any of the two exception 41 given in he Section,
The Legislature though that the above prohibition was not sufficient to deter people from entering into such transactions and therefore it was declared that ‘the act of entering into benami transaction ‘ was a noncognisable and bailable offence. 42 On conviction, the accused shall be punished with imprisonment for a term which may extend to three years or with fine or with both. 43
The Act went further ahead by incorporating provisions for the acquisition of property held benami by central Government. 44
For the purpose of the Act , benami transaction was defined as ‘any transaction in which property is transferred to one person for a consideration paid or provided by another person.’ 45
If we carefully read the definition, it becomes clear that only ‘tripartite benami transactions’ as opposed to ‘bipartite transaction’ were brought within the purview of the Act . The High Court of Kerala, 46 Andhra Pradesh, 47 Madras48 and Bombay49 have held that ‘there is an operative transfer of title only in real benami transactions but not in sham transactions. ‘ Sham transactions were unaffected and they continue to be governed by the earlier law as if this Act not is force.
The word ‘property ‘ made to include, in his broad sweep.’property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property50 This is, indeed, a very wide definition. Therefore , the truie nature of the transaction has to be ascertained without bothering to enquire about the kind of property that is being transferred in order to apply the other provisions of the Act.
Exception to Sec.3 of the Act.
The rule that ‘no person shall enter into benami transaction’ has two exceptions. They come into effect ‘when a person purchases property in
-________________________________________________________________________40.Sec.3 of the Act.
41Sec 3 of the Act
42Sec3 of the Act
43.Sec 3 of the Acr
44Sec 5 of the Act
45Sec 2[a] of the Act
46 Bhargavy .Sumati Kutty v. Janaki Satyabhama, [F.B.AIR 1995Kerala 42]
47.B.Anasuya V.B. Rayadu [AIR 1989 A,P.290]
48.N.Govindarajan v Indian Overseas Bank [D.B.1991 1 Mad L.W.649]
49.Laxman Sukharam v .Balkishna Balvant Ghatage [AIR 1995 Bomb 190]
50.Sec 2[c] of the Act.
the name of his wife or unmarried daughter but not in the name of his son,
The Act laid down that ‘if a person purchases property in the name of his wife or unmarried daughter , if shall always be presumed, unless the contrary is proved , that said property had been purchased for the benefit of the wife or unmarried daughter.’ 51
Despite its being a benami transaction, it insulated to withstand the shocks that emanate from the section. But any purchase of property by the father in the name of his son is outside the scope of the exception.
I am clearly of the opinion that the term ‘wife’ here means only a woman whose marriage with her husband is a valid52 or atleast a voidable53 marriage according to the personal law54 applicable to both of the .A woman whose marriage was viod55 cannot claim the legal status of ‘wife’ and hence a transfer of property in her name by her supposed husband will naturally attract the provision of the Act.
It also appears to me that since the words unmarried daughter were no qualified by the words ‘ naturally born, a purchase of property by an adoptive father in the name of his adoptive daughter us within the scope of the exception because on a valid adoption58 being made , the female child shall be deemed to be the ‘naturally born’57daughter of the adoptive father,
But the exception may not apply if the property is purchased by the natural father in the name of his erstwhile daughter after the adoption.58 Similarly, the cases of a married, divorced and widowed daughters was beyond the scope of the section.
A very interesting question was brought before the Apes Court in Nanda Kishore Mehra v Sushil Mehra59 on the extent of the right of the hunband to recover property from his wife.
The main argument of the husband revolves round the rebuttable presumption incorporated in Sec .3 of the Act .He contended that when he successfully introduces evidence to establish that he never purchased it for her benefit , the presumption operating against him disappears and therefore he has right to recover the property.
On the other hand, the wife contended that she became the absolute owner of the property through operation of law notwithstanding the fact that he never purchased it for her benefit Improving her arguments further , she pointed out that the above presumption incorporated only in Sec. 3, was
51.Sec. 3 of the Act
52 Ref Sec . 5 of the Hindu Marriage Act , 1955.
53Ref, Secs 5[ii] & 12[b] pf the Hindu Marriage Act , 1955
54, Only Hindu Law of Marriage was referred.
55.Ref .Sec 11of the Hindu Marriage Act , 1955
56Ref .The Hindu Adoptions& Maintenance Act , 1956.
57Sec, 12 of the Hindu Adoptions &Maintenance Act 1956.
58.Sec the words ‘all the ties if the child is the family of his or her birth shall be deemed
59.A.I.R. 1995S.C. 2145
meant to save the husband from criminal prosecution and was never intended to argue for non-application of the provisions of Sec , 4 of the Act which prohibits the recovery of property by the real owner from the benamidar.
The three Judges60Bench of the Apex Court allowed the appeal by the husband The Bench rejected the arguments of the wife The Bench said, ‘that it is difficult to hold that a person permitted to purchase a property in the name of his wife or unmarried daughter under Sub-sec, 2 of Sec .3 notwithstanding the prohibition to enter into a benami transaction contained in Sub –see 1 of Sec 3, cannot enforce his rights arising therefrom , for to hold so would amount to holding that the statute which allows creation of rights by a benami transaction also prohibits the enforcement of such rights, a contradiction which can never be attributed to a statute’
If was further held by the Court that ‘since the plaintiff is the husband who had the right to enter into a benami transaction in the matter of purchase of property in the name of his wife or unmarried daughter , as we have held earlier, he is entitled to enforce his rights in the properties concerned if he can succeed in showing that he had purchased them benami in the name of his wife. But in view of the statutory presumption incorporated in Sub-see 2 of Sec 3 of the Act , he can get relief sought in the suit only if he can prove that the properties concerned had not been purchased for the benefit of the wife, even if he succeeds in showing that the consideration for the purchases of the properties had been paid by him’,
Now, we have to critically examine the legal effects of a Decree of Dicorce. 61 and an ‘order of Annulment’62 passed by the Court on the extent or the right of a former usband to recover property form his former wife.
This issue can be examined from two opposing perspectives, First , from her side, it can be said that after divorce she becomes the former wife of her former husband. Consequently , he may not be claim that she has become the absolute owner and does not, any more , hold the property benami for him , Extending her arguments further, she can submit that ‘a person can recover property from her only when she is hilding it in the capacity as his wife’ but not otherwise according to the language used in Sec 3 of the Act . She can also say that ‘ when her marriage is dissolved or annulled by order of the Court , the bar in Sec 4 of the Act completely blocks the efforts of her former husband to claim the property.
But, from an opposite perspective, he may argue , that ‘by extending the meaning of the word ‘wife ‘ so as to include’ a Divorced woman’64 as was done in code of Criminal Procedure , 1973, 65 he may be permitted to recover
60.Hon’ble Justices Kuldip Singh , N Venkatachaliah, S, Saghir Ahmad.
61.See Sec 13, 13B of The Hindu Marriage Act , 1995 [Divorce Proceedings]
62.See Sec 12 of the Hindu Marriage Act 1995[Annuiment Proceedings]
63.Duvmvy Raja Mohana Reddy & Another v, Allur Naji Reddy & other [AIR 1994
SC1647][Mithileskimari’s Decision followed]
64.Explanation[B] to Sec 125 of The Code of Criminal Procedure 1973
65.But , in my opinion, it requires a Legisiative Amendment but not judicial
the property from his former wife He can also stress that ‘ the property one held by her but henami for him when she was his wife shall be deemed to be held by her continuously in Annulment.’ He can also submit that there was not a change in the benami nature of the property but only a change in her position.
At a first glance, it appears that both of them have equal claims to the property, but I feel that she has, definitely, an edge over him if we carefully apply the language used ion Sec. 3 of the Act
Let us examine, in a reverse direction , whether the exception applies when a wife purchases any property in the name of her husband.
I strongly feel that such transaction , though very rare in society, are not prohibited since both the husband and wife enjoy equal legal satus in the family and therefore, she , like her husband , may avail herself of the exception in the Act.
Likewise , can we interpret the words ‘unmarried daughter’ to mean an ‘unmarried son’ since these words were not clearly defined in the Act .Such interpretations may become distinct possibilities in future litigation.
Recovery of Property by the Real Owmer
Earlier to the Act the real owner was subject to a few exceptions, allowed to recover property from the benamidar who us holding it in trust for him. Recovery was recognised to be the rule while non-recovery was an exception
But after the introduction of the Act , the position was completely reversed.
Now , the real owner cannot bring any suit, action or calim against the benamidar in respect of held in his name. 66 Similarly , the real owner is not permitted to put up any defence in any suit filed by the benamidar in respect of property. 67
All such suits and defences of the real owner shall be dismissed and disallowed respectively by the Court unless they are brought under any of the two exceptions68 gives in the section.
The earlier legal principal which recognised ‘ the distinction between ostensible title and real legal title in the same property but vesting in two different persons69 was not recognised by the Act
The Lordships of the Apex Court have stated that ‘ with the Ordinance the Judicial acceptance of benami was being remedied with a view to help people to keep property they were holding for others. If remedied the age old doctrine of benami and made the benamidar the real owner of course
66.Sec.4 of the Act
67.Sec 4of the Act
68.Sec 4 [a]&[b] of the Act
69.Sec the Observations of the Supreme Court in Bhim Singh’s case
Vol. 2] CRITICAL APPRAISAL OF THE LAW RELATING TO BENAMI TRANSACTIONS
With few exceptions”. 70 (Emphasis supplied)
Again in 1995, a Three Judge Bench71 of the Apex Court72 held that “it creates substantive rights in favour of benamidars and destroys substantive rights of real owners who are parties to such transactions and for whom new liabilities are created by the Act.”
The benamidar no longer holds the property in trust for the real owner. He has been declared to be the absolute owner of the property through operation of law. Both ostensible and actual legal ownership rights were given to the benamidar.
What will be the legal position if the benamidar sells the property to a third party for value? Can be convey a perfect legal title to the buyer?
It appears clear to me that the benamidar can convey a perfect legal title to the buyer according to the ratio developed by the Apex Court. 73 The benamidar is now selling the property not as an ostensible owner but as an absolute owner. 74
Can the real owner get back his property if the benamidar voluntarily gives it back to him?
I am of opinion that the benamidar can do this because sometimes a benamidar may not like to retain the property of another person for his benefit. In such circumstances, he may give it back to the real owner either as a gift75 or may sell it to the real owner for a very nominal price.
Exceptions to the above Rule
1st Exception: 76 The above rule shall not apply where the property is held in the name of a coparcener of a Hindu undivided family for the benefit of other coparceners of the family.
The joint family property will be under the management of ‘Karta’77 of the family. Where the Karta provides the consideration and the property is transferred in the name of a coparcener for the benefit of other coparceners, the Karta can recover it under this exception.
But it shall be noticed that this exception shall not apply if the property is not helf in the name of a coparcener but in the name of some other member of the family. The second condition for the application of the
70. See Mithilesh Kumari’s case.
R. Rajagopala Reddy v. Padmini Chandra Sekharan (1995. 2 S.C.C. 630)
1. Hon’ble Justices S.B. Majmudar, B.L. Hansaria and Kuldip Singh.
2. R. Rajagopala Reddy v. Padmini Chandrasekharan (1995. 2 SCC 630)
3. The ratio developed in Mithilesh Kumari’s case was constantly followed in Omprakash’s case. (Air 1992, SC)
4. Though Mithilesh Kumari’s case was overlured by the Apex Court in Padmini’s case, that part of the judgment declaring the benamidar as absolute owner was not disturbed by the Larger Bench.
5. See Sec.122 for the definition of ‘gift’ in Transfer of Property Act, 1882.
6. Sec. 4(3) (a) of the Act.
7. Head of the Hindu Undivided family.
Exception is that the property is held by one coparcener of the family for the benefit of other coparceners.
Otherwise, it becomes an unprotected benami transaction.
Then who is a coparcener has to be examined. According to Hindu Law, a coparcener78 was a member of a Hindu undivided family who acquires a share in the joint family property by birth.
Except in theState of Andhra Pradesh, only a Male person born in a undivided Joint Hindu family was legally recognised to be the Coparcener.
But in Andhra Pradesh, a daughter born in the joint family was also similarly recognised as a coparcener, on par with son through an Amendment79 made to the Hindu Succession Act, 1956.
Therefore, the first exception shall also apply79A where any property is held by a daughter in her name but for the benefit of other Coparceners.
Though the above exception, the right of the Karta (Real owner) to recover any property held in the name of a coparcener for the benefit of other coparceners is being protected by law. The property purchased for the benefit of all the coparceners of the family is protected from being usurped by the coparcener who is holding it in his name.
2nd Exception.80 The trustee or any person who is standing in a fiduciary capacity can still hold any property in his name but for the benefit of the beneficiary or for the benefit of another person for whom he is standing in such capacity.
Therefore, all property constituted trusts are outside the scope of the main rule.
Similarly, the main rule shall not apply where a person standing in a fiduciary capacity is holding property in his name but for others. For example, an agent is standing in a fiduciary capacity towards his principal. Therefore, any property acquired by the agent in his name but with the funds of the principal falls under this exception.
Many more examples of such legal relationships can be cited.
Repealing of some other provisions by the Act81
The Act has repealed different provisions touching upon the law of benami transactions that were included in different legislations. 82
I want to discuss about the repeal of Sec. 66 of the code of Civil
78. For further details Ref. ‘Modern Hindu Law’ (1995 Edition) by Dr. Paras Diwan.
79. Ref. Sec. 29A, 29B, 29C of The Hindu Seccession (Andhra Pradesh) Amendement
79a.Applies only in the State of Andhra Pradesh. See Sec. 1(2) of Amendment Act.
80. Ref. Sec. 4(3) (b) of the Act.
81. Sec. 7 of the Act.
82. Secs. 81, 92, 94 of The Indian Trusts Act, 1882, Sec.66 of the Code of Civil Procedure 1908 and Sec.281A of The Income-Tax Act, 1961 were repealed.
The Section is in two parts. The first part declares that “No person shal maintain any suit against any person claiming title under a purchase certified by the Court on the ground that such purchase was made on his behalf. Similarly, no person shall be allowed to plead against any person claiming title under a purchase certified by the Court that such a purchase was made on his behalf in any suit instituted by the certified-purchaser.”
In other words, a person claiming himself to be the real owner cannot be allowed to institute any suit nor be allowed to put up any defence against any person claiming title under a purchase certified by the Court. The legal title of a certified purchaser is thereby protected by the Legislature. A person cannot suddenly appear before the Court claiming himself to be the real owner and the certified purchaser was only a benamidar for him.
We can refer to the observations of the Supreme Court: in Girijanandini’s case. 84 The Court said that ‘when it is alleged that a person in whose name the property is purchased or entered in the public record is not the real owner, the Court may, if the claim is proved, grant relief upholding the claim of the real owner. But Sec. 66(1) seeks to oust the jurisdiction of the Copurt to give effect to the real as against benami title. The object of the clause is to prevent claims before the Civil Court that the certified purchaser purchased the property benami for another person. Thereby the jurisdiction of the Civil Court to give effect to the real as against the nominal title is restricted and the section must be strictly construed. Where a person alleges that a property purchased at a Court-Auction was purchased on his behalf or on behalf of someone through whom he claims, the suit is clearly barred.”
Of course, the right of the real purchaser to intervene is legally recognised in the second part.
The second part85 declares that “the real purchaser can obtain a declaration from the Court that the certified purchaser’s name was inserted in the purchase certificate fraudulently or without the consent of the real purchaser.”
With this declaration, the real owner can take back the property from the certified purchaser.
The Supreme Court86 has said that “the case fell squarely within the terms of Sec.66(2) of the Code of Civil Procedure, 1908. A Full Bench of the Madras High Court held that such a suit was not maintainable. This Court pointed out that on the facts proved, there was no doubt that the auction-purchaser had acted as agent of the plaintiff and had taken advantage of the fact that the plaintiff’s mother placed confidence in him
71. Sec. 66(1) of theCode.
72. Ref. to Page No.25 Foot Note No.27 of this Article.
73. Sec. 66(2) of theCode of Civil Procedure, 1908.
74. A. Venkata Subbaiah v. Chilakamarthi Kotaiah (C.A.V. 120 of 1964, Dt.12.8.1965, SC.)
And had entrusted to him management of the plaintiff’s estate and the suit could not be dismissed under Sec. 66(1), for it was expressly covered by the terms of Sec.66(2) which provides that nothing in Sec.66(1) shall bar a suit to obtain a declaration that the name of any purchaser certified as mentioned in Sec. 66(1) was inserted int eh certificate fraudulently or without the consent of the real purchasr”
Again, in the year 1994, the Supreme Court87 held that “the publicpolicy behind Sec. 66(1) as it stood then was to prevent fraud in purchase and to prohibit benami purchase at execution sale enabling genuine Court auction and highest bidder secures clear title of it. It, therefore, prohibits a suit by beneficial owner or one claiming through him. Sub-Sec. (2) mitigates against the rijuor and embargo and creates an exception which provides that ‘nothing in this section shall bar a suit…”. Therefore if a real owner purchases the property that the name of a third person was fraudulently and without consent of the real purchaser was inserted, the real purchaser is entitled to obtain a declaration to that effect.” 88
Unfortunately Sec. 66 was repealed because it was thought to be repugnant and redundant to the main provisions of the Act. But I beg to differ in this respect.
Sec. 66 comes into effect only when a person purchases property in ‘sale’ held under the directions and supervisions of a Court89 and get the purchase certificate in his name90. In such circumstances, no other persons is permitted to say that he is the real purchaser and the certified purchaser has purchased the property on his behalf.
Then where is the conflict between Sec. 66 and the provisions of the Act to warrant the repeal of the former provision? On the contrary, the retention of Sec. 66 puts an end to ‘benami purchases’ in a ‘Court-Sale’ at the behest of some other person.
The Legislature must bring back Sec. 66 into force.
All properties held in benami transactions shall be subject to acquisition by such authority through such procedure as may be prescribed. 91
Since the act of entering into benami transaction was expressly forbidden by law92 and hence is illegal, the Government was given powers to acquire properties held benami.
For this purpose, the Legislature delegated powers to the Central
75. P.V. Sankara Kurup v. Leelavathy Nambiar (AIR 1994 S.C. 2694)
76. There is no change in the situation to support the repeal of Sec. 66.
77. Popularly known as ‘Court-Auction’ sales in common parlance.
78. Unlike the purchase of a property made by a person in a routine transaction but in the name of another person.
79. Sec. 5(1) of the Act.
80. Sec. 3(1) of the Act.
Government93 to frame the relevant rules by Notification in Official Gazette94 and these rules shall be placed before the Legislature immediately for approval. 95
But the Government did not, so far, frame the rules.
It appears that the benamidar was declared to be the absolute owner of the property96 by including specific provisions in the Act to prohibit the real owner from recovering the property from the benamidar. The real owner can neither institute97 any suit nor be allowed to put up any defence. 98
It was so held by the Apex Court in Mithilesh Kumari’s99 case followed by Om Prakash’s case. 100
But the power given to the Government to acquire property definitely deprives the benamidar of the right to hold it as an absolute owner. Once the property is acquired, there is nothing left for the benamidar to hold as an absolute owner. Whatever benefit is given with the right hand is being taken away with the left hand.
(1) Then, pray, why did the legislature, in the first instance, declare the benamidar as an absolute owner but subsequently incorporated provisions in the Act for acquisition of property held by him?
(2) Did the Legislature really declare the benamidar as an absolute owner? Will naturally be the next question that has to be examined.
Two reasons can be given as an answer to the first question. First, the benamidar never paid any consideration and naturally he will lose nothing even if it is acquired by the Government. Second, the whole transaction was declared to be an offence and was expressly prohibited by Statute.
Although both the reasons can be supported, the second reason appears to be more appropriate in the given circumstances. But it can also be argued that the property, which was not originally meant to be given to the benamidar absolutely, has passed to him through the operation of law. Absolute ownership rights were given to him. The property can no longer be described as benami. It can be described as legally acquired property’ through operation of law. If this is the correct legal position, the property cannot be acquired without compensation.
Contrary to this argument, it can also be pointed out that he received the property in a transaction that was declared to be an offence101and therefore he cannot be permitted to retain it.
81. Sec. 8(1) of the Act.
82. Sec. 8(1) (a) of the Act.
83. Sec. 8(3) of the Act.
84. Sec. 4 of the Act.
85. Sec. 4(1) of the Act.
86. Sec. 4(20 of the Act.
87. AIR 1989 S.C. 1253 – Ref. Paragraph 17.
88. AIR 1992 S.C. 888 – Ref. Para 9.
89. Sec. 3(3) of the Act.
Then with reference to the second query, we can ask whether the Legislature really declared the benamidar as an absolute owner by merely closing all the doors that were kept open earlier to the real owner to recover the property subject only to a few exceptions.
The Apex Court has already stated that the benamidar has become the absolute owner in the decisions102 cited in the earlier pages.
If we accept that the legislature did in fact declare him as the absolute owner, then the property cannot be acquired without compensation. If not, it can be acquired.
But the correct legal position, if the Government initiates measures to acquire the property, is yet to be decided by the Highest Court. Until then, the benamidar may or may not successfully resist the acquisition. As the matter stands at present, the position of the benamidar is not worse than that of the real owner.
The real owner lost the property to the benamidar103 whereas the benamidar has the distinct possibility of losing it to the Government.
Procedure for initiating prosecution for the offence
Unfortunately, the whole of the Act is silent on the procedure to be followed for initiating prosecution for the offence of “entering into benami transaction” except the inclusion of the above offence in the category of non-cognisable and bailable105 offences.
Therefore, naturally the rules of procedure laid down in theCode of Criminal Procedure, 1973 (hereinafter known as ‘The Code’) have to be followed in any prosecution under the Act unless a contrary rule107 appears in the Act.
We can find a single contrary rule in the form of a ‘Non-obstante’108 clause in the Act.
First, the Act did not expressly specify the ‘judicial forum’ to hold the trial.
But we can safely declare that the Court of Judicial Magistrate of First Class109 has competent jurisdiction110 to hold the trial in view of punishments111 prescribed for the offence. We may also refer to Sec. 26 of the Code. 112
90. Mithilesh Kumari and Om Prakash cases.
91. Sec. 4 of the Act.
92. Sec. 5 of the Act.
93. Sec. 3(4) of the Act.
94. Sec. 4(2) of the Act.
95. Ref. Sections 4(2) and 5 of the Code.
96. See the words “Notwithstanding anything contained in the Code” in Sec.3(4) of the Act.
97. The words ‘Magistrate of 1st Class’ includes ‘Metropolitan Magistrate’.Ref. Explanatory Note 2 in First Schedule of the Code.
98. Ref. Part II of ‘The First Schedule’ Appendix ‘A’ of the Code.
99. Sec. 3(3) of the Act.
100. Ref. Sec. 26(b) (II) of the Code – “Any other Court….” Shown in the First Schedule.
For the removal of doubts, an amendment is desirable, if not essential.
Second, the Court has to ‘take congnisance of the offence’113 before starting the regular proceedings. Without taking cognizance of the offence, the Court will not acquire jurisdiction of trying the offence.
As per the provisions of the Code, a Magistrate may take cognizance of an offence in the following circumstances.
(a) On receiving a Complaint114
(b) Upon a Police Report115
(c) Upon information received from any person other than a Police Officer or upon his own knowledge. 116
But unfortunately, no details are found in the Act about these matters. Therefore, the following points may be noted down in this regard.
To start with, a complaint117 may be filed before a Magistrate enabling him to take conisance of the offence. Althogh a complaint can be filed by any person118 having knowledge of the commission of an offence subject only to a few exceptions,119 naturally, neither the real owner nor the benamidar (nor the transferor) will bring this matter before the Court.
Again a Police Report120 can be submitted before the Court only after completion of an investigation121 into the case. But the Police Officer shall not start an investigation without an order122 from the Magistrate because the above offence was declared to be non-cognisable. 123 When they receive information about the offence, they have to refer the matter to the Magistrate124 and wait for his orders.
Finally, the Magistrate can suo moto take cognizance upon his personal knowledge125 but this may never happen in the normal circumstances.
Only the three persons involved in the transaction are really interested in keeping their interests safe and naturally they will remain silent. Others may not be interested even if they have knowledge of the transaction.
Lastly, the Government, if it has information about these transaction, definitely has the power, as a protector of public interest, to initiate necessary action.
101. Ref. Chapter XIV of the Code – ‘Cognisance of offences byu Magistrates’.
102. Sec. 190(1) (a) of the Code.
103. Sec. 190(1) (b) of the Code.
104. Sec. 190(1) © of the Code.
105. See Sec. 2(d) of the Code for the definition of ‘Complaint’.
106. Vishwa Mitter v. O.P. Podder (AIR 1984 Cr.L.J.1.SC.)
107. Ref. Secs. 195 to 198 of the Code.
108. See Sec. 173(2) of the Code.
109. See Sec. 173(1) of the Code.
110. Sec. 155(2) of the Code.
111. Sec. 3(4) of the Act.
112. Sec. 155(1) of the Code.
113. Sec. 190(1)© of the Code.
“Bringing this matter to the notice of the law enforcement agencies will be the million dollar question.
Let us, for the time being, assume that all the above legal hurdles have been cleared and the matter has been placed before the Magistrate.
The prosecution may be initiated against the real owner or the benamidar or the transferor. Therefore, the question “who, among the three, shall be declared to be the person entering into the transaction” assumes appearing in the Section.
Definitely, the real owner can be prosecuted.
Alternatively, the prosecution can be brought against all of them together since they are involved in the same transaction which was declared as an offence by the statute. All the three persons are responsible because they have entered into the same transaction. There is a provision in the Code which states “that persons accused of the same offence committed in the course of the same transaction may be charged and tried together” 127 in criminal proceedings.
All these complex and controversial legal issued have to be clarified and resolved through immediate amendments to the existing legislation. Or else we have to wait until there are finally settled by the Apex Court.
Towards the concluding stages of my article, I suggest the following Amendments to the existing Legislation.
1. In Sec. 3(2) of the Act, the words ‘her husband’, ‘naturally born or adoptive’ and also the words ‘the husband’ shall be inserted respectively after the words ‘in the name of his wife’, ‘unmarried’ and ‘benefit of the wife’ so as to protect any transaction from the provision in Sec. 3(1) when any property is purchased by a wife in the name of her husband or by a father or mother in the name of an adoptive daughter.
2. If we want to prevent the former husband or wife from recovering the properjty from the other party, the following Amendment can be brought into force by inserting another Sub-Section in Sec.3.
Sec.3(2a):’Norwithstanding anything contained in Sec.3(2) of the Act, the husband or wife shall not be allowed to recover property held in the name of the other party after a Decree of Divorce or an order of annulment of their marriage is passed by the Court’.
Contrary to the above position, a former husband or wife can be permitted to recover property held in the name of the other party through this Amendment.
114. Sec. 3(2) of theAct.
115. Sec. 223(a) of the Code – “What persons may be charged jointly”.
Sec.3(2a): Notwithstanding any ‘Degree of Divorce’ or an order of annulment
passed by the Court and notwithstanding anything contained in Sec. 3(2) of the
Act, the former husband or wife shall have a right to recover property held in the ]
name of the other party provided he or she displaces the statutory presumption
incorporated in Sec.3(2) of the Act.
3. Another change will take care of the position of a married daughter.
Sec. 3(2b) ‘The right of a father or mother to recover property from his or her
unmarried daughter under Sec. 3(2) of the Act shall cease to have
effect on the marriage of such daughter.
4. An amendment may be introduced to bring back Sec. 66 of theCode of Civil
procedure, 1908, into force.
Sec. 7(a) The earlier repeal of Sec. 66 of the Code of Civil Procedure, 1908 is
hereby nullified and it is brought back into force with immediate effect.
These Amendments will certainly go a long way in avoiding unnecessary future litigation.