2016 (8) TMI 423 - HC - Benami Property

Cancellation of the auction - whether the application seeking for directions to set aside the auction purchase is time-barred? - Held that - The applicant was aware and presumably advised as to his rights when the previous application was filed. Yet, no relief that the auction sale was invalid, because the title vested in the applicant, was sought. Having abandoned the relief at the relevant time, the said applicant cannot now seek it. It was held that Section 31 of the Specific Relief Act, 1963 regulates suits pertaining to cancellation of an instrument. It enacts that any person against whom a written instrument is void or voidable and who has a reasonable apprehension that such instrument, if left outstanding, may cause him serious injury, can sue to have it adjudged void or voidable and the court may in its discretion so adjudge it and order it to be delivered or cancelled. Ownership of a property is transmitted by a registered sale deed as per Section 54 of the Transfer of Property Act, 1882. Every sale deed has an effect of divesting the transferor of the ownership of the property and the vesting of the ownership in the transferee. A sale deed by which ownership in an immovable property are transferred can be ignored only where it is void ab initio. In all other cases where it is pleaded that sale deed is a voidable document because it ought not to have been executed or that there is a fraudulent transfer of title by means of the particular sale deed or for any reason which makes the transfer voidable, it is necessary that a claim has to be filed for cancellation of such a sale deed within a period of three years from the date a person comes to know of execution and existence of the sale deed which goes against the interest of such person. This is the enacted by Article 59 of the Limitation Act, 1963. The Supreme Court in the judgment reported as Prem Singh vs. Birbal 2006 (5) TMI 517 - SUPREME COURT has held that Article 59 applies to voidable transactions and not void transactions. If the said ratio were to be applied to this case, it is evident that the applicant should have sought for recall and setting aside of the auction sale, immediately after his dispossession. In not doing so, within the time (3 years from date of knowledge) and in preferring an application in that regard after 5 years, the applicant sought a relief that was time-barred in law. As regards other grounds, the SFIO report itself clarifies that the applicant/appellant was unable to show that he had sufficient sources of income to purchase the suit lands. Though the company did not list the suit properties in the returns and annual reports filed by it, nevertheless the address of the GPA holder is shown to be that of the company s office in Bangalore. The Court is also of the opinion that there is merit in the company s contention that the money for purchasing the property was defrayed by it; the sale deeds of the suit property too were with Shri V.K. Sharma- over 11 years after purchase. If indeed the applicant s claims were genuine, he would have taken steps to secure back such title deeds.

Issues Involved:
1. Legitimacy of the auction sale of the suit property.
2. Applicant's claim of ownership over the suit property.
3. Validity of the impleadment application.
4. Constructive res judicata and time-bar in seeking relief.
5. Applicability of the Benami Transactions (Prohibition) Act, 1988.

Issue-wise Detailed Analysis:

1. Legitimacy of the Auction Sale:
The appeal challenged the order dismissing the appellant's application to set aside an auction sale of the property at village Konaghatta, Bangalore. The property was sold to M/s. Metro Nirvana for ?2,05,00,000/- on 17.05.2006, and the entire amount was paid by 31.07.2006. The appellant claimed ownership and sought restoration of possession. The Official Liquidator opposed the impleadment, questioning the authenticity of the appellant's claim and pointing out that the land was sold under court orders by public auction.

2. Applicant's Claim of Ownership:
The appellant claimed to have purchased 21 acres of land, out of which 16.9 acres were wrongly sold in the auction. The appellant produced sale deeds and a General Power of Attorney (GPA) executed in favor of C.M. Chopra. The Official Liquidator and V.K. Sharma, the ex-Managing Director, contended that the lands belonged to the company in liquidation, and the sale deeds were in the name of the appellant only as a nominee. The SFIO report indicated that the appellant could not prove the source of funds for purchasing the land and that the original title deeds were with V.K. Sharma.

3. Validity of the Impleadment Application:
The Company Judge dismissed the appellant's application for impleadment, noting that no substantive relief regarding the property was sought and that the particulars of the property were not provided. The Division Bench permitted the appellant to file a fresh application with all necessary details. The fresh application reiterated the same facts but sought more reliefs, including cancellation of the sale and restoration of possession.

4. Constructive Res Judicata and Time-bar in Seeking Relief:
The court held that the relief of declaration and cancellation of the sale deed was available and could have been sought in the earlier application (CA No.1315/2006). The applicant's failure to claim the relief at that time invoked the principle of constructive res judicata. Additionally, the application for setting aside the auction sale was time-barred, as it was filed beyond the three-year limitation period prescribed by Article 59 of the Limitation Act, 1963.

5. Applicability of the Benami Transactions (Prohibition) Act, 1988:
The appellant's counsel argued that the appellant was a benamidar, and the transaction was barred by Section 4 of the Benami Act. However, the respondents contended that Section 4(3)(b) of the Benami Act, which excepts transactions where the property is held in a fiduciary capacity, applied in this case. The SFIO report supported the contention that the property was held by the appellant in a fiduciary capacity for the company.

Conclusion:
The court concluded that the appellant's claim was not genuine, as he failed to prove the source of funds for purchasing the land and did not take timely steps to secure the title deeds. The application was dismissed on the grounds of constructive res judicata and being time-barred. The appeal was dismissed with no order as to costs.

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