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TMI Blog2004 (9) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... .K. MATHUR, JJ. Ms. Sunita Dutt for the Appellant. Subramonium Prasad for the Respondent. JUDGMENT S.B. Sinha, J. Background Facts: Andhra Bank (respondent No. 3) is a nationalized bank. Andhra Bank Financial Services Limited (respondent No. 4) is a company wholly owned by Andhra Bank. Canbank Mutual Fund (CBMF) is a subsidiary company of Canara Bank, another nationalized bank. The Appellant herein is also a subsidiary of Canara Bank. In or about 1989, Canbank Mutual Fund floated an open ended investment scheme known as CANCIGO on an assured return of 12.5 per cent per annum payable half yearly; the lock-in-period wherefor was one year. A stipulation was also made to the effect that transfers are not permitted. Hiten P. Dalal (respondent No. 2) was a registered stock broker. Respondent No. 3 at his request applied for CANCIGO units of face value of Rs. 11 crores. Similarly, respondent No. 4 also at the request of Respondent No. 2 applied for CANCIGO units of face value of Rs. 22 crores. Indisputably, the payment of application money for purchase of said CANCIGO units was to be made, out of the monies lying in the bank account of respondent No. 2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and other securities, indulged in by some brokers in collusion with the employees of various banks and financial institutions. The said irregularities and malpractices led to the diversion of funds from banks and financial institutions to the individual accounts of certain brokers. (2) To deal with the situation and in particular to ensure speedy recovery of the huge amount involved, to punish the guilty and restore confidence in and maintain the basic integrity and credibility of the banks and financial institutions the Special Court (Trial of Offences Relating to Transactions in Securities) Ordinance, 1992, was promulgated on the 6th June, 1992. The Ordinance provides for the establishment of a Special Court with a sitting Judge of a High Court for speedy trial of offences relating to transactions in securities and disposal of properties attached. It also provides for appointment of one or more custodians for attaching the property of the offenders with a view to prevent diversion of such properties by the offenders." On or about 6th June, 1992 the respondent No. 2 was declared to be a notified person under the Act. In terms of the provisions of the Act, a Special Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid CANCIGOs together with any accrued interest thereon. ( b )that the CMF be ordered and directed by this Hon ble Court to handover to the Applicant the accrued interest of Rs. 2,06,43,836 and all future sums of interest that may accrue on the said CANCIGOs worth Rs. 33 crores. ( c )that pending the hearing and final disposal of his application CMF be ordered and directed by this Hon ble Court to handover to the Applicant the said accrued interest of Rs. 2,06,43,836 and all further sums of interest that may accrue on the said CANCIGOs worth Rs. 33 crores. ( d )that pending the hearing and final disposal of this application the respondents be directed to file an affidavit showing how the transactions relating to the said CANCIGOs are reflected in their respective books/accounts." The respondent Nos. 2, 3 and 4 did not claim any interest in the said CANCIGOs before the Special Court. By reason of the impugned judgment, the Special Court allowed the application filed by the Custodian and rejected that of the Appellant herein. Hence these appeals. Judgment: 5. Before the learned Special Judge a contention was raised by the respondent No. 1 to the effect that as the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the 5th Respondent. Therefore, merely because the Custodian claims on the footing of the 1st Respondent is the beneficial owner does not ipso facto give a right to the 5th Respondent to claim that the beneficial interest in these CANCIGO s is transferable." Analysing the provisions of section 4(2) of the Benami Transactions Act and section 13 of the Act, the learned Judge opined: "Therefore, so far as the Custodian is concerned, he can make a claim to any property even though the same is held benami in some other person. The same can t be done by the 5th Respondent. The provisions of the Benami Transactions Act would squarely apply to the 5th Respondent. It is the 5th Respondent who can t make a claim or bring an action to enforce any right in respect of the CANCIGO s either against 1st or 2nd or 3rd Respondent or the Custodian. Also, by virtue of section 4(2) of the Benami Transactions Act the 5th Respondent can t be allowed to raise a defence in respect of the CANCIGO s even to the extent of claiming a beneficial interest." Repelling the contentions of the Appellant as regard applicability of section 58 of the Trusts Act, it was held that the expressions "any interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no right, title or interest of any nature whatsoever in the CANCIGOs despite the fact that they were registered in their names, the Respondent No. 2 must be held to have an interest therein by reason of his having made payment therefor and obtained possession thereof. It was pointed out that even the custodian contended before the Special Court that the respondent No. 2 had a beneficial interest and in that view of the matter the question of the Custodian s application seeking to enforce attachment was not maintainable. 8. It was argued that having regard to the provisions contained in section 58 of the Indian Trusts Act the beneficial interest of respondent No. 2 was transferable. The purported bar to the effect that a CANCIGO holder cannot create any interest therein or transfer them to a third person would not apply to transfer of a beneficial interest keeping in view the fact that restriction on transfer was on the respondent Nos. 3 and 4 and not on the beneficial owner. No interest having been created in the Respondent No. 2 by any act or deed of respondent Nos. 3 and 4, the beneficial interest accrued in him by way of operation of law was transferable. It was contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reto. Respondent Nos. 3 and 4, it was contended, were bound by the conditions restricting transfer and in that view of the matter the purported transfer in favour of the Appellant was void. 12. Section 4 of the Benami Transactions Act prohibits and action by the beneficiary for recovery of the property and, in that view of the matter, the Appellant herein could not have filed an application for the Custodian claiming an interest therein. But the said provision would not apply in the case of the Custodian having regard to the fact that he had a duty to attach the property belonging to a notified person and further in view of the fact that in terms of section 13 of the said Act, the provisions thereof had an overriding effect over any other law for the time being in force as a result whereof the provisions of the Act would prevail over the Benami Transactions Act. Reliance in support of the said contention has been placed on Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. 2001 (2) SCALE 1. Issue: 13. The primal issue which arises for consideration is as to whether the respondent No. 2 had any transferable interest in respect of the securities in question. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... striction on transfer of CANCIGOs was stated in the following terms: " Transfer of CANCIGO : Transfer of CANCIGO holding from one person to another person is not permitted. However, in deserving cases Trustees may permit addition of name/s to the existing CANCIGO holding after duly considering the same. However, deletion of name of a CANCIGO holder is permitted, generally, in the event of his death and not otherwise." It is not in dispute that the CANCIGOs stood in the names of respondent No. 3 and respondent No. 4. Note 4 appended to CANCIGO Credit sheet states: "CANCIGO holders cannot create any interest in CANCIGOs or transfer them to a third person." Provisions of the relevant statutes: Indian Trusts Act: 15. Sections 58, 82 (as it then stood) and 88 of the Indian Trusts Act, 1882 read as under: "58. Right to transfer beneficial interest. The beneficiary, if competent to contract, may transfer his interest, but subject to the law for the time being in force as to the circumstances and extent in and to which he may dispose of such interest. 82. Transfer to one for consideration paid by another. Where property is transferred to one person for a consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. 19. Property passes when intended to pass. (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. 20. Specific goods in a deliverable state. Where there is an unconditional contract for the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stodian is satisfied, after such inquiry as he may think fit, that any contract or agreement entered into at any time after the 1st day of April, 1991 and on and before the 6th June, 1992 in relation to any property of the person notified under sub-section (2) of section 3 has been entered into fraudulently or to defeat the provisions of this Act, he may cancel such contract or agreement and on such cancellation such property shall stand attached under this Act: Provided that no contract or agreement shall be cancelled except after giving to the parties to the contract or agreement a reasonable opportunity of being heard. (2) Any person aggrieved by a notification issued under sub-section (2) of section 3 or any cancellation made under sub-section (1) of section 4 or any other order made by the Custodian in exercise of the powers conferred on him under section 3 or 4 may file a petition objecting to the same within thirty days of the assent to the Special Court (Trial of Offences Relating to Transactions in Securities) Bill, 1992 by the President before the Special Court where such notification, cancellation or order has been issued before the date of assent to the Special Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Condition No. 19 creating a bar on transfer has to be construed in the aforementioned context. The bar on transfer created was to have the effect that the same would not be binding on Canbank Mutual Fund as it was not bound to take any notice thereof and only the holder shall be recognized as having the right, title or interest on the CANCIGO. 24. The expressions contained in Condition No. 19 of CANCIGO Scheme differ in material particulars from the expressions used in the Brochure in terms whereof transfer of CANCIGO from one person to another person is not permitted. Permission is not a legal restriction. However, in deserving cases Trustees may permit addition of names to the existing CANCIGO holding after duly considering the same. Permission/Approval subsequently granted would validate the grant. [ see Graphite India Ltd. v. Durgapur Projects Ltd. [1999] 7 SCC 645] CANCIGO indisputably are valuable securities. They are otherwise capable of being transferred in terms of the established business practice, the Sale of Goods Act or Transfer of Property Act. No legal bar has been created in transfer of the said securities. The Scheme, thus, does not and could not have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l purpose. 28. When a real or personal property is purchased in the name of another, a presumption of resulting trust arises in favour of the person who is proved to have paid the purchase money as a result whereof a beneficial interest in the property results to the true purchaser. Law relating to trust has not recognized only a resulting trust but other kinds of trust as well. When an express trust is created by reason of an agreement between the parties and one of them being a beneficiary thereof, the same would be transferable. 29. A beneficial interest in the trust is created in different situations. ( See for example, Barclays Bank v. Quistclose Investments [1970] AC 567) 30. In Barclays Bank s case ( supra ) a company which was substantially indebted to the bank needed funds in order to pay a dividend on its shares. Quistclose Investments advanced the necessary funds on the basis that they were only to be used for this purpose and they were paid into a separate account at the bank, which was made aware of the arrangement. The company went into liquidation before the dividend had been paid. If Quistclose Investments were no more than a creditor of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR 1994 SC 2694. 34. The list of persons specified in section 88 of the Indian Trusts Act is not exhaustive. The expression other person bound in fiduciary character to protect the interests of other persons includes a large variety of relationship. The heart and soul of the matter is that wherever as between two persons one is bound to protect the interests of the other and the former availing of that relationship makes a pecuniary gain for himself, the provisions of section 88 would be attracted, irrespective of any designation which is immaterial. The said principle would also apply for a banker holding the customer s money. 35. A fiduciary would not be liable for any action if there is no concealment by him or no advantage taken by him. 36. A civilized society furthermore always provides for remedies for cases of what has been called unjust enrichment or unjust benefit derived from another which it is against conscience that he should keep. ( see Fibrosa Spolka V. Akeyjna v. Fairbairn Lawson Combe Barbour Ltd. [1942] 2 All ER 122.) 37. In Carreras Rothmans Ltd. s case ( supra ) at page 222, it is stated : ". . . equity fastens on the conscience of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of resulting trust was applicable in India even before the Indian Trusts Act came into force. [ See Mussumat Ameeronnissa Khanum and Mussumat Parbutty s case ( supra ). We therefore, are of the opinion that the respondent No. 2 had a transferable interest in the CANCIGOs. Allotment of CANCIGO - Is it a transfer? 42. The allotment of CANCIGOs is not a transfer as thereby Canbank Mutual Fund had allowed the shares not as owner thereof. The Benami Transactions Act applies when there is a transaction in which the property is transferred. If allotment of CANCIGOs is not a transfer of property, the Act would not apply. [ See Raj Sachdeva v. Board of Revenue AIR 1959 All. 595 and Swadeshi Cotton Mills Co. Ltd., In re [1932] Comp. Cas. 411]. 43. In Madura Mills Co. Ltd. In re [1937] 7 Comp. Cas. 71 , Varadachariar, J. stated the law thus : ". . . As we have already observed, it is no doubt true that in the hands of a shareholder, a share is property and when a shareholder exchanges his shares with another it may be possible to regard the transaction as amounting to a transfer whether by way of exchange or conveyance : Cf. Coats v. Inland Revenue Commissioners [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of the respondent No. 2 herein, the intention of the parties was not to enter into a benami transaction. 45.4 The Benami Transaction Act is not a piece of declaratory or curative legislation. It creates substantive rights in favour of benamidars and destroys substantive rights of real owners who are parties to such transactions and for whom new liabilities are created by the Act. A statute which takes away the rights of a party must be strictly construed. [ See R. Rajagopal Reddy v. Padmini Chandrasekharan AIR 1996 SC 238]. 45.5 The evil of benami transaction was sought to be curbed by reason of the provisions of the Urban Land (Ceiling and Regulation) Act, 1976, the State Ceiling Laws, Income-tax Act, 1961 as amended by the Taxation Laws (Amendment) Act, 1975 ( See sections 281 and 281A of the Income Tax Act), section 5 of the Gift Tax Act, 1958, section 34B of the Wealth Tax Act and section 5(1) of the Estate Duty Act (since repealed). It is only with that view the Benami Transactions (Prohibition) Act, 1988 prohibiting the right to recover benami transaction was enacted. Section 5(1) provided that all properties held benami shall be subject to acquisition as di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e properties in the manner as directed by the Special Court. 47. The properties of a notified person do not vest in the Custodian. He is not a receiver within the meaning of the provisions of the Code of Civil Procedure or an Official Receiver or an Official Assignee under the insolvency laws. He is also not an Official Liquidator under the Companies Act. His right is same as that of the notified person. Only when the notified person had a subsisting right in a property, the same being subject to statutory attachment, the custodian can approach the special court for an appropriate direction in relation thereto. In other words, the custodian is not permitted to deal with any property which did not belong to the notified person on the relevant date. Are the transactions illegal? 48. The Canbank Mutual Fund having regard to the materials on records must be presumed to have issued the CANCIGOs in the names of the respondent Nos. 3 and 4 with full knowledge that they would enure to the benefit of the respondent No. 2. The effect of grant of CANCIGOs by the Canbank Mutual Fund despite such knowledge does not strictly fall for our consideration but the same is relevant to dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suance of a cheque of Rs. 7,98,32,871, but with the question as to whether such a transaction was legally impermissible. The case at hand poses a peculiar problem. Respondent Nos. 3 and 4 applied for allotment of CANCIGOs in their name under the instructions of respondent No. 2. Respondent Nos. 3 and 4 were not to invest their own money. The consideration paid towards the allotment of the units was paid from the account of the respondent No. 2. Even the dividends paid to them at the first instance were credited in the account of the respondent No. 2. Respondent Nos. 3 and 4 had never claimed any right, title or interest in the said securities. Respondent No. 4 in its affidavit dated 26th July, 1993 had categorically stated : "I say and submit that respondents No. 4 are neither necessary nor proper parties to the petition inasmuch as respondent No. 4 have no claim whatsoever in the subject securities." A similar statement had been made by respondent No. 3. Respondent Nos. 3 and 4 did not claim any right title or interest as evidently the possession of CANCIGOs were delivered in favour of the respondent No. 2. 50. Even the Benami Transactions Act while prohibiting benami tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration of this Court was as to whether ready-forward or buy-back transactions are valid. In that case the nature of transaction was not in dispute. The transaction consisted of two interconnected legs, namely, the first or the ready leg, consisting of purchase or sale of certain securities at a specified price and the second or forward leg, consisting of the sale or purchase of the same or similar securities at a later date at a price determined on the first date. It was held that the first leg of the transaction was not illegal whereas the second leg of the transaction was contrary to the provisions of the Securities Contracts (Regulation) Act, 1956. In the said decision, non-compliance of the direction issued by the Reserve Bank also came up for consideration and this Court in no uncertain terms held that whereas non-compliance thereof may result in prosecution but would not result in invalidation of any contract entered into by the bank with a third party. It was opined : "60. In the present case the appellants are basing their claim by relying not on the terms of the ready-forward contract, but on the payment of market price against delivery of the securities. The clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the transferee would not be illegal, unless it is forbidden by law. For the said purpose, the transaction must attract the wrath of section 23 of the Indian Contract Act and not otherwise. Section 3 of the Act does not contemplate extinction of right of a third party. For getting the transaction invalidated in law, only section 4 of the Act can be taken recourse to. 55. The constitutional validity of the Act came up for consideration before this Court in Harshad Shantilal Mehta v. Custodian [1998] 5 SCC 1. The vires of the said statute was upheld, inter alia , on the ground that by reason thereof the right, title and interest in a property belonging to respondent No. 3 is not affected. The interest of the Appellant, thus, was not affected by the said Act or by the Benami Transactions Act. Extinction in right, title and interest in a property must be caused as a result of operation of law and not otherwise. Creation of title by an act of parties is subject to law. Once a title vests in a person he cannot be divested therefrom except by reason of or in accordance with a statute and not otherwise. An admission does not create a title; the logical corollary whereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the sale is completed. . . ." (p. 108) 59. In V.B. Rangaraj s case ( supra ), whereupon reliance has been placed by the learned counsel for the respondents, transfer was contrary to the articles of the company. This Court therein had no occasion to consider the effect of a transaction which is contrary to the terms of issue. The said Act provides for certain statutory consequences which must be kept within the four corners thereof. The learned Special Judge, therefore, erred in asking unto itself a wrong question that the statutory provisions create no right in the third party including the Appellant herein. The question which should have been posed was : Had any right, title or interest of respondent No. 2 existed on the notified date in the said CANCIGOs authorizing the Custodian to act in terms of section 3? The answer to that question must be rendered in the negative. It is no doubt true that section 13 of the said Act provides for a non obstante clause but before the said clause is resorted to, it must be shown that there exists a provision inconsistent with the provision in any other Act. In any event, if respondent Nos. 3 and 4 could transfer or relinquish its r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y) in favour of another although a transfer can be given effect to after the expiry of the lock-in period. 63. Furthermore, in a case of this nature, the respondent No. 2 did not hold any personal interest which would come within the purview of section 6( d ) of the Act. An interest in the CANCIGOs was not created in the respondent No. 2 for enjoyment in his personal capacity. Section 6( d ) of the Transfer of Property Act would apply when a transfer is in violation of such stipulation which would defeat the object thereof. The learned Special Judge, therefore, committed an error in invoking section 6( d ) of the Transfer of Property Act. 64. In Nallajerla Krishnayya v. Vuppala Raghavulu AIR 1958 AP 658, it is stated: "5. . .If, on a construction of the relevant terms of the instrument, the Court comes to the conclusion that rights were created against the property, the matter is taken out of the purview of section 6( d ) of the Transfer of Property Act." (p. 660) 65. In Harshad Shantilal Mehta s case ( supra ), this Court held: "18. The last question can be answered first. As stated above, section 3(3) clearly provides that the properties attached are proper ..... X X X X Extracts X X X X X X X X Extracts X X X X
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