2019 (1) TMI 1147 - HC - Benami Property

Prohibition of benami transactions - vested right in favour of the respondents/defendants by the repealed provisions of Section 4(3) of the unamended Act when it used the expressions fiduciary capacity and trustee - Held that - There did not exist any vested right that a particular transaction was specified as an exempted transaction as not being a barred benami transaction under the expressions fiduciary capacity and trustee under the repealed provision of Section 4(3) of the unamended Act, and by Section 2(9) of the Amended Act a benami transaction is defined and the exceptions have been specifically defined which are the exceptions to the prohibited benami transaction. No vested right is thus taken away, and therefore, the trial court has erred in holding that there existed a vested right in favour of the respondents/defendants by the repealed provisions of Section 4(3) of the unamended Act when it used the expressions fiduciary capacity and trustee . Thus definitions of the exempted transactions to the prohibited benami property transactions, and now contained in the four exceptions in Section 2(9) of the Act are always deemed to have been included in the exceptions to the prohibited benami transactions, and in the facts of the present case, the suit of the appellant/plaintiff would be maintainable by the third exception contained in Section 2(9) of the Amended Act, and that whether or not on facts, the appellant/plaintiff is able to make out a case under the third exception, the same is a disputed question of fact requiring trial, and can only be decided after evidence is led by the parties, and the suit plaint thus could not have been rejected under Order VII Rule 11 CPC without trial. This appeal is therefore allowed. The impugned Judgment of the trial court dated 08.05.2018 is set aside. Suit is remanded back to the trial court for decision in accordance with law.

Summary

Issues Involved:
1. Applicability of the unamended Benami Transactions (Prohibition) Act, 1988 versus the Amended Prohibition of Benami Property Transactions Act, 1988.
2. Whether the suit filed by the appellant/plaintiff is barred by the provisions of the unamended Act.
3. Determination of vested rights under the unamended Act and their implications under the Amended Act.
4. Whether the trial court erred in rejecting the plaint under Order VII Rule 11 CPC.

Detailed Analysis:

1. Applicability of the unamended Benami Transactions (Prohibition) Act, 1988 versus the Amended Prohibition of Benami Property Transactions Act, 1988:
The trial court held that the Amended Act, which came into effect on 01.11.2016, does not have retrospective application. The appellant/plaintiff argued that the Amended Act should apply, as it provides a more comprehensive definition of 'benami transaction' and includes various exceptions not present in the unamended Act. The High Court disagreed with the trial court, stating that the issue of prospective operation would only arise if a specific vested right created by the unamended Act is sought to be taken away by the Amended Act. The High Court emphasized that the Amended Act's provisions are meant to clarify and elaborate on the exceptions to benami transactions, not to remove any vested rights.

2. Whether the suit filed by the appellant/plaintiff is barred by the provisions of the unamended Act:
The trial court rejected the plaint based on Sections 3 and 4 of the unamended Act, which prohibit benami transactions and the right to recover property held benami. The appellant/plaintiff claimed ownership of the property despite the sale deed being in the names of his wife and three sons, arguing that he paid the entire sale consideration. The High Court noted that the unamended Act created exceptions for transactions involving fiduciary relationships and trustees, which were further elaborated in the Amended Act. The High Court concluded that the trial court erred in holding the suit to be barred without considering these exceptions.

3. Determination of vested rights under the unamended Act and their implications under the Amended Act:
The High Court examined whether the exceptions in the unamended Act created vested rights for the respondents/defendants. It concluded that no vested right existed under the unamended Act's Section 4(3) because the terms 'fiduciary capacity' and 'trustee' were not specifically defined. The Amended Act's Section 2(9) provides a detailed definition of 'benami transaction' and exceptions, which the High Court deemed to be clarifications rather than changes that would take away any vested rights.

4. Whether the trial court erred in rejecting the plaint under Order VII Rule 11 CPC:
The High Court held that the trial court erred in rejecting the plaint without a trial. The appellant/plaintiff’s claim fell under the third exception of the Amended Act's Section 2(9), which requires a trial to determine the factual basis of the claim. The High Court emphasized that the suit should not have been dismissed at the preliminary stage without considering the evidence.

Conclusion:
The High Court allowed the appeal, set aside the trial court's judgment, and remanded the suit back for trial. The case was directed to be marked to a competent court for disposal in accordance with the law, emphasizing the need for a trial to resolve the disputed facts. The High Court clarified that the Amended Act's provisions apply and that the appellant/plaintiff's suit is maintainable under the exceptions provided in the Amended Act.