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.IssueThe 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.DecisionSetting 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...

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

Yash Mittal

The Court said contractual commercial arrangements cannot be disguised as fiduciary relationships to escape the Benami Act.

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

Yash Mittal

The Court said contractual commercial arrangements cannot be disguised as fiduciary relationships to escape the Benami Act.

This is a premium content Available exclusively to Our subscribers

INR 1099+GST

Tags

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