2013 (7) TMI 1152 - HC - Benami Property

Suit for Declaration of Ownership of shares and Permanent Injunction restraining the defendant from dealing with the said shares transfer of shares under trust or against consideration - Benami Transaction or not - Period of limitation for initiating suit - HELD THAT - The plaintiff has approached the Court with himself being the beneficial owner of the shares, with the shares in the name of Omkam and BGR being transferred in the name of the defendant for consideration paid by the plaintiff and on which plea it should be the plaintiff who should have been entitled to the dividend with respect to the said shares, but the plea of the plaintiff in the plaint is of the defendant having agreed to deposit the said dividend with VIL and in pursuance to the said agreement having deposited ₹ 5,50,000/- out of the dividend received of ₹ 23,97,863/- with VIL. Even if the plaintiff were to be a majority shareholder of VIL, VIL remains a distinct legal entity from its shareholders and the question of the monies owed to the shareholders being paid to the company without any satisfactory explanation therefor, and which has not been given, does not arise. Similar is the plea of the plaintiff of the loan admittedly repayable by VIL to the defendant being squared off against the balance dividend which as per the case built by the plaintiff should have been repayable by the defendant to the plaintiff. The squaring off is sought to be done with VIL paying ₹ 16,50,000/- to the defendant as against ₹ 16,02,137/- which was due. The same is also contrary to all canons of accounting practices particularly corporate accounting which is subject matter of internal and external audits. What follows from such inconsistencies is that the present suit is an abuse of the process of the Court to ward off the claim of the defendant for recovery of the balance loan amount admittedly advanced by the defendant to VIL. The present suit dismissed as not disclosing a cause of action and / or being thoroughly vexatious and frivolous and in abuse of the process of this Court. Costs of ₹ 20,000/- are also imposed on the plaintiff payable to the defendant.

Issues Involved:
1. Ownership of shares.
2. Transfer of shares in trust.
3. Bar of limitation.
4. Applicability of the Benami Transactions (Prohibition) Act, 1988.
5. Maintainability of the suit.

Issue-wise Detailed Analysis:

1. Ownership of Shares:
The plaintiff claimed ownership of 13,97,150 shares of VIL, which were in the custody and name of the defendant. The plaintiff argued that these shares were held in trust by the defendant and should be returned upon demand or disassociation from the company. The plaintiff sought a declaration of ownership, a permanent injunction to restrain the defendant from dealing with the shares, and a mandatory injunction directing the defendant to transfer the shares back to the plaintiff.

2. Transfer of Shares in Trust:
The plaintiff contended that the shares were transferred to the defendant in trust, without consideration, and were returnable on demand. The defendant, however, argued that the shares were transferred for lawful consideration and not in trust. The court examined the Minutes of the Meeting (MoM) of the Board of Directors of MPS, which recorded the transfer of shares in trust. However, the court found that the MoM was in violation of Section 153 of the Companies Act, which prohibits entering any notice of trust on the Register of Members.

3. Bar of Limitation:
The defendant argued that the suit was barred by limitation as the shares were transferred on 27.04.2004, and the suit was filed beyond the three-year limitation period provided under Article 58 of the Limitation Act. The court, however, found that the plaintiff's cause of action accrued within three years prior to the suit, following the defendant's resignation from VIL on 24.07.2008 and the termination of his services on 02.09.2009. Therefore, the suit was not barred by limitation.

4. Applicability of the Benami Transactions (Prohibition) Act, 1988:
The court examined whether the transaction was hit by the Benami Act. The plaintiff argued that the transaction was not benami as it was bilateral and lacked consideration. However, the court found that the transaction involved three parties: Omkam and BGR as transferors, the plaintiff as the real purchaser, and the defendant as the ostensible purchaser. The court held that the transaction fell within the definition of a benami transaction under the Benami Act, as the shares were transferred to the defendant for consideration provided by the plaintiff. The court also noted that the plaintiff failed to establish a case of trust, as there was no written agreement, and the defendant did not stand in a fiduciary capacity to the plaintiff.

5. Maintainability of the Suit:
The court found that the suit was not maintainable as it was barred by the Benami Act. The plaintiff's claim of holding the shares in trust was not supported by any valid documentation or fiduciary relationship. The court emphasized that the Benami Act prohibits claims based on benami transactions, and the plaintiff's suit was an abuse of the process of the court. Consequently, the suit was dismissed as frivolous and vexatious, with costs of Rs. 20,000 imposed on the plaintiff.

Conclusion:
The court dismissed the suit, finding that the plaintiff's claims were barred by the Benami Act and that the suit did not disclose a valid cause of action. The court also imposed costs on the plaintiff for abusing the process of the court.

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