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TMI Blog1989 (2) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... ny property held benami against the person in whose name the property is held or against any other person by or on behalf of a person claiming to be the real owner of such property. Sub-section (2) of section 2 barred defences of a like nature. Sub-section (3) carved out two exceptions to the rule. The exceptions were (a) where the person in whose name the property is held is a coparcener in a Hindu undivided family and the property is held for the benefit of the coparceners in the family ; and (b) where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity and the property is held for the benefit of another person for whom he is a trustee, or for whom he stands in such capacity. Section 3 declared that the said Ordinance shall not affect the provisions of section 53 of the Transfer of Property Act, or any law relating to transfers for an illegal purpose. Sec tion 4 repealed section 82 of the Indian Trusts Act, 1882, section 66 of the Civil Procedure Code, 1908, and section 281A of the Income-tax Act, 1961. The Ordinance was replaced by the "Benami Transactions (Prohibition) Act, 1988". The Act covers a far broader field than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration paid or provided by another person". The expression "property" is defined in clause (c) to mean "property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property". Section 3 prohibits benami transactions while section 4 prohibits the right to recover property held benami. Section 5 provides for acquisition of benami properties. These three sections read as follows: "3. Prohibition of benami transactions.-(1) No person shall enter into any benami transaction. (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. 4. Prohibition of the right to recover property he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here it is proved otherwise, the bar operates. Entering into a benami transaction is declared to be an offence. It is made noncognizable and bailable. Coming to section 4, it disables the real owner from enforcing any right in respect of a property held benami against the benamidar or any other person in whose name the property is held. The real owner is also disabled from putting forward a like defence. This disability, however, does not apply where the person in whose name the property is held is a coparcener in a Hindu undivided family and the property is held for the coparceners in the family. The disability also does not apply in the case of trusts or where the person in whose name the property is held stands in a fiduciary capacity to the beneficiary. Section 5 declares that all properties held benami shall be subject to acquisition, without any compensation, in the manner prescribed by the Rules. Sections 6, 7, 8 and 9 are self-evident and do not require any explanation. However, it is necessary to mention what the sections repealed by section 7 of the impugned Act provided for. Sections 81, 82 and 94 of the Indian Trusts Act occurred in Chapter IX, carrying the title "Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without the consent of the real purchaser, or interfere with the right of a third person to proceed against that property, though ostensibly sold to the certified purchaser, on the-ground that it is liable to satisfy a claim of such third person against the real owner." Section 281A of the Income-tax Act was inserted by the Taxation Laws (Amendment) Act, 1972. It contained a provision similar to the one contained in section 3(1) of the impugned Act. According to it, no suit to enforce 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 instituted in any court by or on behalf of a person, referred to in the section as the claimant, claiming to be the real owner of such property unless notice in the prescribed form and containing the prescribed particulars in respect of the property has been given by the claimant within a period of one year from the date of acquisition of the said property. This, in main, was the substance of the section, apart from certain procedural aspects and minor particulars. The practice of a person, purchasing properties not in his own name but in the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisting provisions have failed to adequately meet the mischief and that a more drastic provision is required. It appended a Draft Bill towards the end of its Report. It was this Report which was made the basis for issuing the Ordinance. Then came the Act with a broader sweep the provisions of which have already been referred to above. Sarvasri K. Ramakrishna Reddy and P. M. Gopal Rao assailed the validity of the Act and submitted that it has no retrospective operation. Their reasoning runs thus: (i) the impugned Act is relatable to entry 6 in List III (Concurrent List), in the Seventh Schedule to the Constitution. In so far as the Act applies to land, it would fall within entry 18 of List 11 (State List). In either case, it cannot apply to agricultural lands. Indeed, Parliament has no power to make a law dealing with agricultural lands or their transfers ; and (ii) a reading of the Act shows that it is only prospective in operation. Section 4 does not apply to transactions entered into prior to May 19, 1988. Only transactions which are benami in nature, as defined in the Act, and have been entered into on or after May 19, 1988, are hit by section 4. The Act does not declare t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. According to the petitioners' counsel, it is relatable to entry 6 of List III and entry 18 of List II. They read as follows : "6. Transfer of property other than agricultural land ; registration of deeds and documents." " 18. Land, that is to say, right in or over land, land tenures including the relation of landlord and tenant, and the collection of rents ; transfer and alienation of agricultural land ; land improvement and agricultural loans ; colonization." On the other hand, the contention of learned standing counsel for the Central Government is that the Act is relatable to entry 10 in List III, as also to entry 7 and, at any rate, to entry 97 in List 1. These entries read: "10. Trust and Trustees." "7. Contracts, including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land." "97. Any other matter not enumerated in List 11 or List III including any tax not mentioned in either of those Lists." The contention of the petitioners is mainly based upon the decision of the Federal Court in In Re, Hindu Women's Rights to Property Act, 1937, AIR 1941 FC 72. The Central Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under an express trust and a beneficiary under resulting or constructive trust, if we leave alone questions arising under the Limitation Act. Section 82, Trusts Act, which deals with benami transfers, occurs in the Chapter beginning with section 80, which provides that an obligation in the nature of a trust is created in certain specified cases ; and section 82 enacts that the transferee must hold the property for the benefit of the person paying or providing the consideration . . . Section 95 reaffirms the provision implied in section 80 ... in benami transactions, the holder of the legal title is only a bare trustee." To the same effect are the observations of the Supreme Court in CED v. Aloke Mitra [1980] 126 ITR 599. There, it is said (at p. 612): "It is but axiomatic that a benami transaction does not vest any title in the benamidar but vests it in the real owner. When the benamidar is in possession of the property standing in his name, he is in a sense the trustee for the real owner ; he is only a name-lender or an alias for the real owner. In Petheperumal Chetty v. Muniandy Servai [1908] LR 35 IA 98 ; ILR 35 Cal 551, the Judicial Committee quoted with approval the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act would be piece of legislation relating to trusts and trustees. The impugned Act cannot also be treated as an enactment relating to transfer of property. Applying the doctrine of pith and substance, it is a law relating to trusts and trustees. It can, in no sense, be related to the legislative head "Transfer of property" in entry 6 of List III. It cannot also be said that the enactment is one relating to land. The Act does not deal with land. It is concerned with benami transactions. It prohibits them. It bars the remedies and defences which were available hitherto to the real owners vis-a-vis the benamidars. True it is that the Act also affects benami transactions relating to land, or agricultural land, as the case may be. But that is only incidentally. Applying the doctrine of pith and substance, the enactment is referable to entry 10. Any trenching upon entry 18 in List 11 is only incidental, and it does not affect the validity of the Act or the competence of Parliament. The approach to be adopted in this behalf is stated clearly in A. S. Krishna v. State of Madras [1957] AIR 1957 SC 297. It was held there (at p. 301) : "if a statute is found in substance to relate to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing counsel for the Central Government also sought to rely upon entry 97 in List 1. Entry 97 is a residuary entry. It takes in any other matter not enumerated in List II or List III. In Union of India v. Harbhajan Singh Dhillon [1972] 83 ITR 582 (SC), the constitutional validity of section 24 of the Finance Act, 1969, which amended certain provisions of the Wealth-tax Act, 1957, so as to include the capital value of agricultural lands for computing net wealth, was questioned as beyond the legislative competence of Parliament. It was argued that wealth-tax is a tax on the capital value of the assets and, therefore, relatable to entry 86 in List which expressly excludes agricultural lands from its purview. (Entry 86 in List I reads : "Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies ; taxes on the capital of companies"). It was also argued that the said enactment is, in truth, relatable to entry 49 in List 11 and, for that reason too, beyond the competence of Parliament. (Entry 49 of List 11 reads : "Taxes on lands and buildings"). While dealing with these submissions, the Supreme Court indicated the approach to be followed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, we have held that the impugned enactment cannot be related to any of the entries in List 11. If so, no further question arises with respect to the competence of Parliament to enact the impugned provisions. Section 4 its operation and its effect : Section 4 bars a suit, claim, or an action by the true owner to enforce his right against the benamidar. He is also precluded from raising a defence that he is the true owner, vis-a-vis the benamidar. Section 4 was indeed the only substantive section in the Ordinance which preceded the Act (section 2 of the Ordinance). The language of sub-section (1) of sec tion 4 is significant. It says, no suit, claim, or action "shall lie" against the person "in whose name the property is held". Similar wording is employed in sub-section (2) also. It is true that there are no express words in the Ordinance, or the Act, stating that the said bar applies to transactions entered into prior to the date of the Ordinance/Act. But, in our opinion, the said result follows from the language used in the section. The section has no meaning and no purpose if it has no application to transactions entered into prior to the date of the Ordinance/Act. Making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the legal position as understood at present, namely, that the real owner can always enforce his rights against the benamidar. This position is now proposed to be reversed, and the reversal should not work in manner which will defeat the intention of the parties who acted under the old law. Of course, those benami transactions which have been entered into with the object of carrying out fraudulent or illegal motives, and which, therefore, fall within specific provisions enacted by the Legislature to prevent the abuse of the practice of benami, are governed by those specific provisions, and the bar against retrospective operation of the new provision will not affect the operation of those specific provisions." It is also brought to our notice that in the Draft Bill set out in paragraph 6.33, section 3(b) provided for such exemption. Section 3(b) in the Draft Bill suggested by the Law Commission, read: 3. Nothing in this Act shall, - . . . (b) apply in relation to any property held benami at the commencement of this Act." In our opinion, however, the said aspect does not advance the case of the petitioners in any manner. It is true that the Law Commission did make such a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there were similar provisions in other enactments-in particular section 281A of the Income-tax Act but which were, evidently, found to be inadequate. A more drastic provision was found necessary to check the evil. It is also argued for the petitioners that, according to section 1(3) of the Act, section 4, among some other sections, shall be deemed to have come into force on May 19, 1988. This is indicative of the intention of Parliament, according to them, to apply the bar contained in section 4 only to transactions entered into on or after the said date. It is not possible to agree. Commencement of an Act is different from the operation of the Act. An Act may commence on a particular date, but it may have retrospective operation. These concepts are distinct and cannot be mixed up. They cannot be confused for one another. The language of section 4 is clear. The object sought to be achieved is equally evident. The legislative history also is a pointer. Having regard to all the above circumstances, we are of the opinion that section 4 governs transactions not only entered into on or after May 19, 1988, but all transactions entered into prior to the said date as well. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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