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2023 (8) TMI 1104 - HC - Benami PropertyBenami transaction - true owner of property - Whether application for setting aside the sale can be entertained which is not supported by any affidavit but based on a report of the Administrator/Official Liquidator? - HELD THAT - It has been an established practice of this Court that the Official Liquidator does not file an affidavit accompanied by a judge s summons. He only files a report which is of course signed and sealed by him at the end of every page. This is a practice which has been followed by this Court for decades. The Learned Judge felt that even an Official Liquidator should follow the same practice as being done by a private litigant by filing an affidavit together with a judge s summons. We would like to recall a latin maxim at this point Cursus curiae est lex curiae . The meaning of this latin maxim is that the practice of the Court is the law of the Court . Following this maxim Coke C.J. in Burrowes Vs. High Commission Court held that the Court should always adopt the practice which has been prevailing before it. We hold that the practice developed by this Court of the Official Liquidators or Administrators filing a report instead of an affidavit has to be followed till a new procedure is introduced. We answer the first question accordingly. Whether in view of the provisions of the Benami Transactions (Prohibition) Act 1988 the Company can be said to be the owner of the property though the property is shown to be under ownership of the true owners throughout? - In order to apply the plea of Benami there has to be a sale/a conveyance. Title must pass from the existing owner to an other person who is a benamidar for the other. The transaction in the present case required 3 persons namely the vendor the benamidar/ostensible owner and the actual owner. The effect of the Benami Act is that the relationship between the ostensible owner the real owner is snapped. In this case as pointed out by the Learned Judge in his order of reference there is no transfer at all. On receipt of monies the owner executes a Power of Attorney in favour of the employees of the Company. The transfer in favour of the customers is done by the employee as a Power of Attorney agent of the original owner. Therefore the question of benami does not arise here. It is at best a Power of Attorney Sale which we shall address later. In the case before us the powers of attorney were executed in the last decade of the previous millennium and therefore the argument based on Suraj Lamps 2011 (10) TMI 8 - SUPREME COURT necessarily has to fail. This makes it clear that neither the Act as it stood in 1988 nor its subsequent avatar apply to the provision of the Benami Act as to the transactions among the landowner powers of attorney the company. We answer the second question accordingly. Whether in absence of a petition under Sections 542 and 543 of the Companies Act the transaction in favour of third party can be questioned by way of simple company application or company is required to file a civil suit to challenge the sale in competent Court having jurisdiction with permission of Company Court ? - . The powers of the Company Court under section 446 (1) and (2) are necessary for answering the question. If a winding up petition is pending and a Provisional Liquidator is appointed the Company Court ipso facto would have jurisdiction to entertain all the proceedings that are covered under Sections (a) to (d) of Section 446 (2). This principle has been laid down at least five (5) decades ago in Sudarsan Chits (I) Ltd vs O. Sukumaran Pillai Ors 1984 (8) TMI 242 - SUPREME COURT We answer this question stating that a combined reading of Section 446 read with Section 456 of the Companies Act shows that the Company Court will have jurisdiction to deal with the issue relating to a transaction alleged to be in favour of a third party. The caveat to this proposition is that the jurisdiction of the Company Court commences one year prior to the date of presentation of the company petition. The said power cannot be exercised by a Company Court for the transactions which have been concluded to which the company is a party and if the title has vested in third parties one year prior to the presentation of the petition. What is the effect of Civil Court decree which has attained finality? - Whether in absence of positive evidence of false misrepresentation a finding can be recorded of fraud and misrepresentation without trial only on basis of Administrator/Provisional Liquidator? - As seen from Section 446 of the Companies Act the power of the Company Court is wide. Therefore the Company Court can always decide on the validity of a decree when it is presented before it. Whether the decree is binding on the Company and consequently on the official liquidator are matters which have to be gone into at the time of the Trial. We add the Company Court has the power not only to entertain suits or other proceedings but it can also decide the said suit or proceeding after taking evidence. Whether the Company Court has the jurisdiction to determine question of title of land falling outside jurisdiction of this Court in view of Clause 12 of Madras High Court Letters Patent? - The answer to this question lies under Section 10 of the Companies Act of 1956. If a Company is registered within the jurisdiction of a High Court exercising its jurisdiction under the Companies Act of 1956 then necessarily by virtue of Section 10 of the Act the Company Court has the power to determine the title of the land of properties falling outside the Ordinary Original Jurisdiction of the Court. We have to note that Letters Patent has been treated as a parliamentary statute and it is held to be in force till it is replaced by another parliamentary statute. Companies Act of 1956 is a parliamentary statute and it has conferred the power on the company courts under section 10 of the Companies Act. We hold in this case though the properties in this case are situated in the state of Telangana and Andhra Pradesh as the company was registered within the jurisdiction of this Court the Company Court has the jurisdiction to deal with the said issues.
Issues Involved:
1. Application for setting aside the sale without an affidavit. 2. Ownership under Benami Transactions (Prohibition) Act, 1988. 3. Challenging transactions in absence of petitions under Sections 542 and 543 of the Companies Act. 4. Effect of Civil Court decree which has attained finality. 5. Finding of fraud and misrepresentation without trial. 6. Jurisdiction of Company Court over land outside its jurisdiction. Summary: Issue 1: Application for setting aside the sale without an affidavit The court addressed whether an application for setting aside the sale can be entertained without an affidavit but based on a report by the Administrator/Official Liquidator. The court upheld the established practice of the Official Liquidator filing a "report" instead of an affidavit, citing the principle "Cursus curiae est lex curiae" (the practice of the Court is the law of the Court). The court emphasized that this practice should continue until a new procedure is introduced. Issue 2: Ownership under Benami Transactions (Prohibition) Act, 1988 The court examined whether the company could be considered the owner of the property under the Benami Transactions (Prohibition) Act, 1988, despite the property being under the ownership of the true owners. The court concluded that the Benami Act did not apply as there was no actual transfer of title to a benamidar. The transactions were deemed "Power of Attorney Sales," and the relationship between the parties was fiduciary, falling under the exemptions in Section 4(3)(b) of the Benami Act. Issue 3: Challenging transactions in absence of petitions under Sections 542 and 543 of the Companies Act The court addressed whether transactions in favor of third parties could be questioned by a simple company application or if a civil suit was required. It concluded that the Company Court has jurisdiction to entertain such proceedings under Sections 446 and 456 of the Companies Act. However, this jurisdiction is limited to transactions within one year prior to the presentation of the company petition. Issue 4: Effect of Civil Court decree which has attained finality The court held that the Company Court has the power to decide on the validity of a Civil Court decree when presented before it. The binding nature of the decree on the company and the official liquidator would be determined during the trial. Issue 5: Finding of fraud and misrepresentation without trial The court stated that the Company Court has the authority to entertain and decide suits or proceedings, including determining fraud and misrepresentation, after taking evidence. This power is derived from the wide jurisdiction granted under Section 446 of the Companies Act. Issue 6: Jurisdiction of Company Court over land outside its jurisdiction The court concluded that the Company Court has the jurisdiction to determine the title of land outside its ordinary jurisdiction if the company is registered within the jurisdiction of the High Court. This power is conferred by Section 10 of the Companies Act, 1956, overriding the limitations of Clause 12 of the Madras High Court Letters Patent.
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