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TMI Blog1989 (4) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sale deed has not been produced and a copy is not available. But, referring to this deed, PW 2, Gopalan Nair, executed an assignment in favour of the third defendant on June 20, 1968 (exhibit B-1). About six years thereafter, on April 29, 1974, the third defendant purported to assign his rights in favour of defendants Nos. 1 and 2 under exhibit B-6. The plaintiff averred that the original assignment in favour of Gopalan Nair was sham and nominal, not acted upon, that no possession was transferred and that he had no intention to transfer the property in favour of PW 2, Gopalan Nair, or anybody else. He filed the suit when defendants Nos. 1 and 2 attempted to trespass on the property armed with the sale deed in their favour executed in April, 1974. The suit was, therefore, filed in May, 1974, for declaration of title, injunction and for other reliefs. The defendants contended that the transactions were real and genuine and that the title actually vested in them. They also contended that just prior to the assignment deed exhibit B-6 on April 29, 1974, under an agreement executed by the plaintiff, exhibit B-2, dated on April 10, 1973, possession was given to the first defenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples and interference in the second appeal was justified. This court said that, obviously, the intention behind executing a benami document is best gatherable from the evidence of the parties directly concerned. An admission by PW 2 is an important piece of evidence in the light of the principles relating to gathering the intention of a party. The surrounding circumstances would certainly throw light on the intention of the parties. The inadequacy of the consideration for the document would be one such. The conduct of the parties also, it is settled law, is relevant. That a fabricated document was projected in an attempt to substantiate the defence plea is conduct which could not be totally ignored by a court of law. The matter was remitted to the lower court. The court below has agreed with the reasoning and conclusion of the trial court and held that the assignment, exhibit B-1 by PW 2 in favour of the third defendant was a "nominal document" not supported by any consideration and that "PW 2 did not intend to execute a genuine sale deed". It also held that exhibit B-2, the agreement set up by the first defendant was "spurious and unbelievable" and that the subsequent sale deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n v. Rajeev [1988] 174 ITR 482 and in Narayanan v. Gangadharan (No. 1) [1988] 180 ITR 491 have taken the view that the Act applies to pending proceedings. The Supreme Court has also held that the court is bound to take into account the provisions of this Act in moulding the relief in appeal. The Benami Transactions (Prohibition) Act, 1988, applies to all proceedings pending before courts of law on the date of the commencement of the Act even if they are at the second appellate stage. On the authority of the Surpeme Court, it is, therefore, clear that though the suit was filed on May 29, 1974, and decreed on August 23, 1976 and confirmed on March 31, 1977, the second appeal was pending on May 19, 1988, when the Act came into force. The Act has to be taken into account and no relief can be granted to the plaintiff, if section 4 is attracted. This leads to the question whether, on the facts and in the circumstances of this case, section 4 of the Act is attracted. Benami transactions, a practice common to all communities and prevalent in this country for a very long time have received judicial recognition from very early times, as would be seen from the classic decisions of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the real owners, usually called the benami system, is and has been a common practice in the country. . . The rule applicable to benami transactions was stated with considerable distinctness in a judgment of this Board delivered by Sir George Farwell. Referring to a benami dealing, their Lordships say:- `It is quite unobjectionable and has a curious resemblance to the doctrine of our English Law that the trust of the legal estate results to the man who pays the purchase money, and this again follows the analogy of our common law that where a feoffment is made without consideration the use results to the feoffor.' So long, therefore, as a benami transaction does not contravene the provisons of the law, the courts are bound to give it effect. As already observed, the benamidar has no beneficial interest in the property or business that stands in his name ; he represents, in fact, the real owner, and so far as their relative legal position is concerned he is a mere trustee for him...." In the 57th Report of the Law Commission of India on benami transactions, regarding benami transactions in general, it was stated, with reference to judicial decisions, thus: "Principle that tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote that the word 'benami' is used to denote two classes of transactions which differ from each other in their legal character and incidents. In one sense, it signifies a transaction which is real, as for example, when A sells properties to B but the sale deed mentions X as the purchaser. Here the sale itself is genuine, but the real purchaser is B, X being his benamidar. This is the class of transactions which is usually termed as benami. But the word 'benami' is also occasionally used, perhaps not quite accurately, to refer to a sham transaction, as for example, when A purports to sell his property to B without intending that his title should cease or pass to B. The fundamental difference between these two classes of transactions is that whereas in the former there is an operative transfer resulting in the vesting of title in the transferee, in the latter there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed. It is only in the former class of cases that it would be necessary, when a dispute arises as to whether the person named in the deed is the real transferee or B, to enquire into the question as to who paid the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urtailed or modified the general principles of benami. Thus, under section 66 of the Civil Procedure Code, no suit could be maintained against any person claiming title under a purchase certificate issued by court on the ground that the purchase was made on behalf of the plaintiff or on behalf of someone through whom the plaintiff claims. Section 281A of the Income-tax Act, inserted by the Taxation Laws (Amendment) Act, 1972, Provided for the failure to furnish information in respect of properties held benami and prohibited institution of suits to enforce any right in respect of any property held benami unless certain specified conditions are fulfilled. The Indian Trusts Act had, in Chapter IX, made provisions for "Certain obligations in the nature of trusts". Section 81 of the Indian Trusts Act reads thus: "81. Where it does not appear that transferor intended to dispose of beneficial interest. Where the owner of property transfers or bequeaths it and it cannot be inferred consistently with the attendant circumstances that he intended to dispose of the beneficial interest therein, the transferee or legatee must hold such property for the benefit of the owner or his legal rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. (2) Nothing in sub-section (1) shall apply to the purchase of property by any person in the name of his wife or unmarried daughter and it shall be presumed, unless the contrary is proved, that the said property had been purchased for the benefit of the wife or the unmarried daughter. (3) Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both. (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), an offence under this section shall be noncognizable and bailable." Section 4 pressed into service reads: "4. Prohibition of the right to recover property held benami.(1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. (2) NO defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... title in favour of the transferee named in the document but in favour of a third person who furnishes the consideration and takes possession. No title vests in the transferee mentioned in the document and he is a mere name-lender for the beneficiary to whom the property was intended to be transferred. In the second class of cases, there is no effective transfer, the transferor does not lose his title, the transferor does not part with his possession and there is no payment of consideration. The transferor never intends to transfer his title or possession. The transferor continues to be the real owner. These transactions are not really benami in character, but are loosely described as benami. The question for consideration is whether the Act applies to both these cases, or whether it is limited only to the benami transaction falling in the first category and not extending to those falling in the second category. The Act has provided a definition for "benami transaction". It means "any transaction in which property is transferred, to one person for a consideration paid or provided by another. It contemplates cases where (a) there is a transfer of property, and (b) the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause it can affect only real transactions where the transferee is only an "alias" for the actual beneficiary. There are also other reasons for reaching the same conclusion. It has to be noted that the Trusts Act, in Chapter IX declared certain obligations to be in the nature of a trust. Section 81 applied to those cases where it did not appear that the transferor intended to dispose of the beneficial interest The illustration (a) to that section reads thus "A conveys land to B without consideration and declares no trust of any part. It cannot, consistently with the circumstances under which the transfer is made, be inferred that A intended to transfer the beneficial interest in the land. B holds the land for the benefit of A." Section 81, therefore, applies to a transaction under, which no transfer was intended and no consideration passed, i.e., to a sham transaction. But section 82 of the Trusts Act provides for another class of transactions which are also statutorily treated as obligations in the nature of a trust and they relate to transfer to one for consideration paid by another. It is significant that section 82 of the Trusts Act has practically been bodily lifted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended to be acted upon and in fact not operated and that it remained a mere paper transaction, without divesting any rights of the transferor. A claim for declaration that a transaction is only sham and nominal is permissible in law. Any contention that it is not available in view of section 92 of the Evidence Act cannot also be accepted. Vivian Bose J. in Asaram v. Ludheshwar, AIR 1938 Nag 335, 342 [FB], held thus: "All that section 92, Evidence Act, excludes is oral evidence to contradict, vary, add to or subtract from the terms of a contract which has been reduced to writing. It does not preclude a party from showing that the writing was not really the contract between the parties but was only a, fictitious or colourable device which cloaked something else. Benami transactions which have been upheld by the Judicial Committee on numerous occasions afford a common illustration of this rule." I am in respectful agreement with this dictum. A right under the general law for a declaration from a court of law that a transaction is fictitious, sham or nominal and that it has not been acted-upon and was never intended to be acted upon, is not taken away by the Benami Transactions' (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention runs. This contention misses the substance of the findings recorded by the courts below. The courts below have found that PW 2, Gopalan Nair, did not pay any consideration and did not get possession under the 1963 document. It was sham and nominal. If Gopalan Nair did not get any rights in 1963, there was nothing he could transfer in 1968 under exhibit B-3. He wanted to efface himself even as a name-lender and, therefore, created fictitious document, exhibit B-3. As exhibit B-3 was of no avail, the first defendant claimed possession under an agreement, exhibit B-2, said to have been executed by the plaintiff himself. The courts below have found that this agreement is a fabricated document. This court, in the earlier second appeal agreed with those findings that this agreement, exhibit B-2, was spurious and unbelievable. The courts below have also found that the subsequent assignment deed, exhibit B-6, was only a nominal document. The findings of the courts below, on the questions of fact, are that the transactions are sham and nominal and that the plaintiff never intended to transfer his title or possession. The fact that the courts below have loosely used the expression " ..... X X X X Extracts X X X X X X X X Extracts X X X X
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