The Appellate Tribunal under SAFEMA has ruled that where an under-construction property was purchased in the name of a company (DCPL) using funds routed through RDPL from shell entities, and DCPL neither allotted shares to RDPL nor executed any loan agreement, causing RDPL’s advances to become time-barred, shareholders/directors who took over DCPL indirectly became beneficial owners of the property; hence, the transaction was a benami transaction within section 2(9)(A) of the Prohibition of Benami Property Transaction Act, 1988.
While declaring the attached property as ‘Benami’, the Tribunal highlighted that the particular loan facility of Rs. 3 crores was availed by benamidar company (DCPL) as an eyewash to escape from the rigours of the proceedings under the Prohibition of Benami Property Transaction Act, 1988 (PBPT) Act, and accordingly, this case is clearly covered within the definition of section 2(9)(A) of PBPT Act.
The Appellate Tribunal pointed out that when the DCPL in fact has no outstanding liability towards RDPL, and the respondents are apparently the beneficial owners of the property in the name of DCPL, it is difficult to understand that if DCPL was enjoying the unsecured interest free loan facility from RDPL, then why it took the OD facility of Rs. 3 crores from Kotak Mahindra Bank, for making part payment to RDPL and thereby making itself liable to pay interest to Kotak Mahindra Bank.
To show the said benami transaction as a loan transaction and to frustrate the attachment proceedings under the PBPT Act, the Tribunal noted that the DCPL took a loan of Rs. 3 crores from Kotak Mahindra Bank, where some amount was returned to RDPL and the remaining was utilised for its own purposes. Thus, the right of Kotak Mahindra Bank needs to be protected irrespective of the fact of a benami transaction, as the show cause notice was issued on May 31, 2019 and the Provisional Attachment Order was passed on July 31, 2019, after grant of OD facility by the Kotak Mahindra Bank, without any knowledge that the properties are likely to be attached under PBPT Act.
The Tribunal also granted liberty to the appellant to initiate separate proceedings against the new director who stepped into the shoes of the former director/beneficial owner from the date of transfer of shares on December 27, 2018.
The Members of the Division Bench comprising Balesh Kumar and Rajesh Malhotra observed that the share application money was not kept in any bank account till the allotment of shares. Even after the execution of the sale agreement of the property in favour of DCPL, it received an additional sum of Rs. 1.34 crores in the month of April 2013 to February 2014. There is no explanation of how the said additional amount was utilised by DCPL and why the shares were not allotted to RDPL.
The Bench found that no loan agreement was ever executed between RDPL and DCPL, and this fact is also admitted by the respondents. There is no year-to-year acknowledgement of outstanding loans by DCPL in favour of RDPL. Accordingly, the loan advancement made by RDPL on various dates became time-barred after the expiry of the period of three years from the date of the respective advancement of the amount to DCPL.
A time-barred debt is one for which the statute of limitations has expired, making it legally unenforceable in court. However, the debt’s liability still exists. The Indian Contract Act (specifically section 25(3) allows for the revival of a time-barred debt through a new, written, and signed promise from the debtor to repay all or part of the debt, under which the debtor becomes liable for the new promise. Similarly, the acknowledgement of the outstanding debt is required in favour of the creditor before the expiration of the period of limitation, as per section 18 of the Limitation Act, added the Bench.
In the present case, the Bench noted that there is nothing on record that any written and signed contract acknowledging the debt was executed by DCPL in favour of RDPL as per section 25(3) of the Contract Act after the expiry of period of limitation, or any acknowledgment was issued by DCPL in favour of RDPL regarding the outstanding dues as per section 18(1) of the Limitation Act. Therefore, technically, RDPL lost its legal right to recover the said loan advanced to DCPL. This points towards a direction that the amount tendered by RDPL to DCPL is apparently a benami property and the transaction was a benami transaction, which was utilised for purchasing the property.
This view is fortified by the fact that the said amount was tendered for the purchase of shares, which were never allotted by DCPL. Later on, the said amount was shown as an unsecured interest-free loan. Therefore, there is no pecuniary advantage to RDPL in any manner against the investment of Rs. 10.36 crores in DCPL; rather, it caused a loss to RDPL on account of depreciation of the amount due to inflation. As per the record of RDPL, it has not earned any profit from making the investment with DCPL, which was later shown as a loan without interest and without security, clarified the Bench.
The pumping of the black money by some unknown persons in RDPL is quite discernible, observed the Bench while pointing out that the RDPL is also not a Beneficial Owner, as in fact this is a shell company of its six shareholders. The identity of the six shareholders was revealed during the investigation of this case, but they were not impleaded as beneficial owners, and even otherwise, RDPL and its shareholders lost the valuable legal right to recover the outstanding dues from DCPL, being time-barred debt. It is not clear as to how and why the six shareholders procured the huge amount from various entities for pumping the funds into the newly incorporated RDPL, which was further transferred to DCPL without any security, written agreement or clause for interest. Therefore, even the six constituents of RDPL are not the real investors.
Briefly, the DCPL was incorporated with initial dummy directors/shareholders, and subsequently, new directors/shareholders took over the company at face value. The DCPL purchased an under-construction property in December 2012 and obtained possession in 2015. The purchase consideration was paid out of funds received from RDPL, which in turn had been funded through unexplained share premiums from multiple shell entities.
Appearances:
SPP Manmeet Singh Arora, for the Appellant
Advocate Sankalp Sharma and CA Parag Doshi, for the Respondent
