Property Purchased In Benami Transaction Can't Be Claimed By Real Owner On Basis Of Will Executed By Benamidar: Supreme Court

The Supreme Court has held that a person cannot claim ownership over property purchased in a benami transaction merely on the basis of a Will executed by the ostensible owner, observing that such testamentary arrangements cannot be used to defeat the statutory bar under the Prohibition of Benami Property Transactions Act, 1988.  

The Court on Friday (May 8) held that properties purchased with funds provided by another person under a commercial contract do not qualify as 'fiduciary duty' for seeking an exemption under the Prohibition of Benami Property Transactions Act, 1988 (Act), thereby making them liable for attachment by the Central Government.

A bench of Justice JB Pardiwala and Justice R Mahadevan heard the case where both the Appellant-defendant and Respondent-plaintiff assert ownership over the suit property purchased in the name of one K. Raghunath, who remained an ostensible owner, as the funds utilised for the purchase of the property were invested by the plaintiff.

The plaintiff claimed ownership under a registered Will executed by the ostensible owner in his favour. The plaintiff had claimed that although the properties stood in the name of late K. Raghunath, they were in fact purchased using his funds because statutory restrictions under the Karnataka Land Reforms Act prevented him from buying agricultural land in his own name. He relied on a registered Will dated April 20, 2018 allegedly executed by Raghunath in his favour.

The defendants, in turn, claimed possession and title by succession, asserting that the deceased, being the father of some defendants and husband of the first appellant, had bequeathed the property to Appellant No. 1, the mother of the other appellants.

The Respondent-plaintiff filed a suit seeking declaration of title, and permanent injunction, however, the same was contested by the Appellant-defendant upon filing an application under Order VII Rule 11 CPC for rejection of plaint on the ground of being barred by law, i.e., Benami Act. The defendants primarily argued that since the suit filed by the plaintiff for asserting title over the suit property was a Benami Property, therefore they can't claim title and ownership over the same.

The plaintiff-respondent, on the other hand, justified the filing of suit, arguing that the deceased was holding the property in a fiduciary relationship with him, as part of the employer-employee relationship, thus qualifying for exemption under the Prohibition of Benami Property Transaction Act. He claimed that the suit was founded on a Will and not the alleged benami transaction.

The trial court allowed the Order VII Rule 11 CPC application, prompting the plaintiff to move to the High Court, filing a Regular First Appeal.

Aggrieved by the High Court's decision overturning the trial court's decision, the defendants filed an appeal before the Supreme Court.

Issue

The issue was whether the deceased was holding the suit property as part of a 'fiduciary relationship' with the Respondent-plaintiff, to seek an exemption under the Act.

Decision

Setting aside the High Court's decision, the judgment authored by Justice Mahadevan held that the relationship between the deceased and the Respondent-plaintiff cannot be categorised as that of a fiduciary duty, because “fiduciary duty arises where one person is bound to protect the interests of another and must not derive personal gain from that position of trust.” The Court noted that since the alleged transfer of funds by the Respondent to the deceased was out of a MoU, contractually entered into between the parties for commercial purposes, the Respondent cannot seek an exemption under the Act.

“…an employer-employee relationship does not, by itself, fall within the recognized categories of fiduciary relationship for the purpose of exemption under the Benami legislation. Secondly, the law does not ordinarily recognize a fiduciary relationship between a company and its employee, or between a director and an employee of the company, in the sense sought to be projected here. Rather, the recognized fiduciary duty is that of a director towards the company since a director is bound to act in the interests of the company.”, the court observed. (See Sangramsinh P. Gaekwad and others v. Shantadevi P. Gaekwad (Dead) through LRs and others, (2005) 11 SCC 314)

Noting that the “alleged transfer of funds for purchase of property was based on contractual arrangements embodied in the MOUs”, the Court rejected the contention of the Respondent / Plaintiff that “there existed any fiduciary relationship between him and K. Raghunath so as to exempt the transaction from the rigour of the Benami law.”

Since the property was found to have been acquired under a Benami transaction, and the Appellant-defendant failed to prove the acquisition of the property by the deceased via independent sources, the claim of the Appellant-defendant over the suit property was also declined, rendering the suit property for an attachment under Section 27 of the Act.

“The purchase of the properties by K. Raghunath is not protected by any of the exceptions contained in Sections 3 or 4 of the Benami Act, either before or after amendment, and the object of the MOUs relied upon is illegal and void. Equally, the appellants / defendants, claiming as legal heirs, are not entitled to derive any advantage therefrom, having failed to establish that the suit properties were acquired from the independent funds of the deceased.”, the court observed.

Rejecting the argument that the suit was merely based on a Will and therefore outside the Benami Act, the Court held that the testamentary document could not be viewed in isolation from the foundational pleadings regarding the original transaction. The Court observed that the alleged Will was being used as a device to claim beneficial ownership over properties admittedly standing in another's name.

While upholding the rejection of the plaint, the Court also ordered the confiscation of the property under the Benami law.

“The suit schedule properties are consequently liable to confiscation under Section 27 of the Act. Since the bar under Sections 45 and 65 does not operate against the High Court or this Court, it is unnecessary to relegate the parties to the Adjudicating Authority once a competent judicial determination declaring the transaction benami has attained finality. In such circumstances, confiscation may follow as a consequence of that declaration.”, the court ordered.

The Supreme Court also directed the Central Government to appoint an Administrator and take over the suit properties under the Benami Act within eight weeks, observing that the transaction had been judicially determined to be benami.

The Court further clarified that since the finding declaring the transaction as benami had attained finality, no court would entertain any future claim over the properties arising out of or founded upon the benami arrangement.

The appeal was disposed of in view of the aforesaid.

Headnote

Code of Civil Procedure, 1908 – Order VII Rule 11 – Rejection of Plaint – Duty of Court at the threshold – Clever Drafting and Fictional Cause of Action – Admission of a plaint is not an automatic or mechanical process - The trial Court has a bounden duty to scrutinize the averments of the plaint in conjunction with the relied-upon documents to determine whether it discloses a real cause of action or if it is barred by law - Litigants cannot circumvent statutory prohibitions by clever drafting or artful pleadings that create a surreal or illusory cause of action - When clever drafting veils an implied bar under law, the Court must lift the veil, expose the bar, and nip the sham litigation in the bud at the earliest stage, without necessarily waiting for the defendant to enter appearance or seek rejection. [Paras 8, 9, 26 - 29]

Prohibition of Benami Property Transactions Act, 1988 – Sections 2(9), 3, 4, 5, and 27 – Benami Transaction – Retrospective Operation of 2016 Amendment – Fiduciary Capacity Exemption – Employer-Employee Relationship– The amendments introduced by the Benami Transactions (Prohibition) Amendment Act, 2016, being declaratory, procedural, curative, and machinery-oriented, operate retrospectively and can be invoked in respect of past benami transactions - To determine whether a transaction is benami, the substance must prevail over form, and the Court must look at the real nature of the transaction beneath any camouflage - The expression "fiduciary capacity" under Section 2(9)(A)(ii) must receive a restricted construction and covers explicitly enumerated classes (trustee, executor, partner, director, etc.) or categories notified by the Central Government - An ordinary employer-employee relationship or a commercial arrangement supported by reciprocal financial consideration does not constitute a fiduciary relationship - Where a plaintiff provides the consideration to purchase agricultural lands in the name of an employee/name-lender to circumvent statutory restrictions under the land reforms law, the arrangement squarely falls within the mischief of a prohibited benami transaction. [Paras 18 – 29]

Hindu Succession Act, 1956 – Section 25 – Disqualification of Murderer – Applicability to Testamentary Succession – Standard of Proof in Civil Proceedings – Section 25 provides that a person who commits murder or abets murder shall be disqualified from inheriting the property of the person murdered - This disqualification is based on public policy, justice, equity, and good conscience, encapsulating the maxim nullus commodum capere potest de injuria sua propria (no man can take advantage of his own wrong) - The bar under Section 25 applies uniformly to both intestate and testamentary succession (disposition through a Will) - Criminal conviction is not a condition precedent for the operation of this statutory bar; the civil consequence of disqualification can be examined independently on the standard of preponderance of probabilities - A person who claims title through a Will but suppresses the material fact that they are facing investigation/prosecution for the murder of the testator is disentitled from asserting any rights in a court of equity. [Relied on T. Arivandandam v. T.V. Satyapal and Another, (1977) 4 SCC 467; Mithilesh Kumari and Another v. Prem Behari Khare, (1989) 2 SCC 95; R. Rajagopal Reddy (Dead) by LRs and Others v. Padmini Chandrasekharan (Dead) by LRs, (1995) 2 SCC 630; Union of India and Others v. Major General Madan Lal Yadav, (1996) 4 SCC 127; Nusli Neville Wadia v. Ivory Properties and Others, (2020) 6 SCC 557]

Prohibition of Benami Property Transactions Act, 1988 – Section 27 and Section 45 – Civil Confiscation vs. Criminal Prosecution – Constitution of India, Article 20(2) – Double Jeopardy – Adjudication and confiscation under Chapter IV of the Benami Act are civil actions directed against the property itself to remedy a statutory violation, whereas personal criminal prosecution is governed by Chapter VII - Confiscation is a civil consequence tested on the principle of preponderance of probabilities and does not amount to prosecution or criminal punishment - Simultaneous or successive initiation of both civil confiscation and criminal prosecution does not attract the bar of double jeopardy under Article 20(2) of the Constitution - Once a competent judicial determination declaring a transaction to be benami attains finality in a civil suit, the property is liable to absolute confiscation by the Central Government, and it is unnecessary to relegate the matter to the statutory Adjudicating Authority under the Act.

Cause Title: MANJULA AND OTHERS VERSUS D.A. SRINIVAS

Citation : 2026 LiveLaw (SC) 478

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Appearance:

For Petitioner(s) :Mr. Mukul Rohatgi, Sr. Adv. Mr. C. S. Vaidyanathan, Sr. Adv. Mr. Mahesh Thakur, AOR Mrs. Anuparna Bordoloi, Adv. Mr. Narveer Yadav, Adv. Mr. Siddhartha Sati, Adv. Ms. Ruchi Kumari, Adv.

For Respondent(s) :Mr. Vikas Singh, Sr. Adv. Mr. Gagan Gupta, Sr. Adv. Mr. T M Shivakumar, Adv. Mr. Deepak Goel, AOR Ms. Deepika Kalia, Adv. Ms. Vasudha Singh, Adv. Mr. Sudeep Chandra, Adv. Ms. Laxmi Pundir, Adv. Ms. Simmi Bagga, Adv. Ms. Sanjana, Adv.