The Supreme Court has clarified that where, on a meaningful reading of the plaint and the documents relied upon, the plaintiff’s claim is in substance founded on an assertion that property purchased in another’s name with his funds was held for his benefit, the suit is barred by the Prohibition of Benami Property Transactions Act and the plaint is liable to be rejected under Order VII Rule 11 CPC, even if the plaint is framed as one based on a Will or testamentary succession.
The Court laid down that the fiduciary exception under the Benami law must be strictly construed; an employer-employee or comparable commercial/contractual relationship does not by itself constitute such fiduciary capacity for exemption from the Benami prohibition. It also explained that contracts or arrangements structured to defeat statutory restrictions, such as land reform restrictions, are unlawful under Section 23 of the Contract Act and cannot be enforced through civil proceedings.
The Court additionally held that the 2016 amendments to the Benami Act, insofar as they provide declaratory, curative and procedural machinery for attachment, adjudication and confiscation, apply retrospectively/retroactively to earlier benami transactions, while penal consequences remain prospective. Finally, the Court held that once a transaction is judicially declared benami and that determination attains finality, the property becomes liable to confiscation and recourse to the adjudicatory procedure under Sections 24 to 26 need not be repeated, since the adjudicating authority cannot sit in appeal over a final judicial determination.
Therefore, the Supreme Court set aside the High Court’s judgment, restored the rejection of the plaint in substance, and directed the Central Government to appoint an Administrator and take over the suit properties in accordance with law within eight weeks, making clear that no court shall entertain any claim in respect of the subject properties founded upon the benami transaction.
A Two-Judge Bench comprising of Justice J.B. Pardiwala and Justice R. Mahadevan observed that while deciding an application under Order VII Rule 11 CPC, the plaint must be read meaningfully and holistically, together with documents relied on in the plaint, and the Court is not confined to a superficial or merely formal reading of pleadings. It emphasized that trial courts are not to mechanically admit plaints and register suits; if on meaningful reading the suit is frivolous, barred by law, suppresses material facts, or uses clever drafting to create an illusion of cause of action, the plaint must be rejected at the threshold.
On the facts pleaded, the Bench found that the plaintiff’s case was, in substance, that the properties were purchased in the name of K. Raghunath using funds allegedly provided by the plaintiff and held for his benefit; therefore, the claim was inseparably linked to an assertion of beneficial ownership under a benami arrangement.
The Bench rejected the plaintiff’s attempt to place the case within the fiduciary exception. It held that there is no fiduciary relationship between a director of a company and an employee of the company for this purpose, and that contractual/commercial arrangements supported by consideration do not fall within the fiduciary exception under the Benami law.
The Bench further held that the MOUs relied upon by the plaintiff disclosed an arrangement intended to circumvent Sections 79A and 79B of the Karnataka Land Reforms Act, 1961 by funding purchase of agricultural land in another’s name and later seeking transfer after conversion, and therefore the object of the arrangement was unlawful under Section 23 of the Contract Act. It also held that the plaintiff had suppressed the fact that he was accused in the murder of K. Raghunath, and reiterated that suppression of material facts disentitles a party to relief.
On succession, the Bench held that the bar under Section 25 of the Hindu Succession Act applies both to intestate and testamentary succession, and a person accused of the murder of the deceased is disentitled to assert inheritance rights on principles of Section 25 as well as justice, equity and good conscience, with civil consequences being assessable on preponderance of probabilities.
The Bench held that the 2016 amendments to the Benami Act are retrospective/retroactive insofar as they are declaratory, curative, procedural, and machinery-oriented, though penal provisions creating new offences or enhancing punishment operate only prospectively. It also held that confiscation under the Benami Act is a civil consequence and distinct from prosecution under Chapter VII. Therefore, confiscation and prosecution operate in different spheres and Article 20(2) is not attracted.
Briefly, the appeal arose from a suit filed by the respondent/plaintiff seeking: (i) declaration that he was owner of the suit schedule properties on the basis of a Will allegedly executed by K. Raghunath; (ii) rectification of alleged mistakes in the schedule to that Will; and (iii) consequential injunction. The appellants were defendant nos. 1 to 3, being the wife and children of late K. Raghunath. Their case was that the properties were the self-acquired properties of K. Raghunath and that he had earlier executed a registered Will in favour of appellant no. 1, on the basis of which revenue records were mutated in their favour and they remained in possession.
The appellants also alleged that the respondent had entered into a conspiracy resulting in the murder of K. Raghunath and that FIRs had been registered against him and others at the instance of the appellants. During the suit, the appellants filed an application under Order VII Rule 11(a) and (d) CPC for rejection of the plaint on the grounds that the plaint disclosed no cause of action and that the suit was barred under Sections 4 and 6 of the Prohibition of Benami Property Transactions Act, 1988. The Trial Court allowed the application and rejected the plaint. The High Court set aside that order and restored the suit for adjudication on merits, holding that the Benami Act was not attracted on the plaint averments.
Appearances:
Mahesh Thakur, AOR, Anuparna Bordoloi, Adv., Narveer Yadav, Adv., Dhanush M, Adv., Siddhartha Sati, Adv., Ajay Pal Singh, Adv., Ruchi Kumari, Adv., Akshay Kumar, Adv., Sai Tanishka K, Adv., for the Appellant
Gagan Gupta, Sr. Adv., T.M. Shivakumar, Adv., Deepak Goel, AOR, Sanjana, Adv., for the Respondent
