Supreme Court allows appeal against rejection of plaint under Benami Act: Pawan Kumar vs. Babulal (2019) INSC 268

Date of the Judgment: April 02, 2019
Citation: 2019 INSC 268
Judges: Uday Umesh Lalit, J., Indu Malhotra, J.
Can a plaint be rejected under Order VII Rule 11 of the Code of Civil Procedure (CPC) if it involves a benami transaction where the plaintiff claims to be the real owner, but the property is in the name of another? The Supreme Court addressed this question in a case where the lower courts had rejected a plaint under the Benami Transactions (Prohibition) Act, 1988. The Supreme Court bench, comprising Justices Uday Umesh Lalit and Indu Malhotra, allowed the appeal, setting aside the lower courts’ decisions. The majority opinion was authored by Justice Uday Umesh Lalit.

Case Background

The appellant, Pawan Kumar, filed a suit seeking a declaration of title to a shop in Kasba Fatehpur. He claimed that although the shop was purchased in his father’s name, Babulal (the first defendant), he had provided all the funds for the purchase. The appellant also sought the cancellation of a sale deed dated 24.07.2006, which was executed by his father in favor of the second defendant.

The appellant stated that his father was a tenant in the shop, and after a compromise with the erstwhile owner, the shop was to be sold to his father. However, since his father did not have the funds, the appellant arranged all the money by borrowing from money lenders. At the time of the sale deed, the father insisted that the property be in his name. The appellant further stated that his father had executed a document on a stamp paper on 14.03.2002, acknowledging that the appellant had paid the entire consideration for the purchase. The second defendant was also a tenant in the same premises, who was paying rent to the appellant. The second defendant, taking advantage of the father’s old age, got a document written in his favor regarding the first floor of the disputed shop on 19.07.2002.

The appellant’s suit was filed in the court of District Judge, Sikar, as Civil Suit No. 126 of 2006.

Timeline

Course of Proceedings

The trial court allowed the second defendant’s application under Order VII Rule 11 of the CPC and rejected the plaint, stating that the suit was barred under Section 4 of the Benami Transaction (Prohibition) Act, 1988. The trial court noted that the plaintiff himself stated that he purchased the property in his father’s name with his own income, which is prohibited under the said Act.

The appellant then filed an appeal (SBRFA No.511 of 2016) in the High Court of Judicature for Rajasthan at Jaipur, which was also dismissed. The High Court observed that the plaintiff was seeking a declaration in his name, stating that he purchased the property in his father’s name, and that the Benami Act prohibits such suits.

Legal Framework

The case revolves around Section 4 of the Benami Transaction (Prohibition) Act, 1988, which was in force before its amendment by Act 43 of 2016. The relevant provisions are as follows:

“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 of a person claiming to be the real owner of such property.
(3) Nothing in this section shall apply,—
(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; or
(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 towards whom he stands in such capacity.”

Section 4 of the Benami Transaction (Prohibition) Act, 1988, prohibits suits to enforce rights in benami properties, but has exceptions for properties held by coparceners in a Hindu Undivided Family (HUF) or by those in a fiduciary capacity.

Arguments

Appellant’s Arguments:

• The appellant argued that the case was covered by Section 4(3)(b) of the Benami Transaction (Prohibition) Act, 1988.
• The appellant contended that his father held the property in a fiduciary capacity, as the entire purchase money was provided by him.
• The appellant relied on a document dated 14.03.2002 executed by his father, acknowledging that the appellant had paid the entire consideration for the purchase of the property.
• The appellant relied upon the decision of the Supreme Court in Marcel Martins v. M. Printer and others [(2012) 5 SCC 342], stating that the case was fully covered by Section 4 (3) of the Act.

Respondent’s Arguments:

• The respondent argued that the suit was barred under Section 4 of the Benami Transaction (Prohibition) Act, 1988.
• The respondent relied on the decision of the Supreme Court in Om Prakash and another v. Jai Prakash [(1992) 1 SCC 710].

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the case of the appellant was barred under Section 4 of the Benami Transaction (Prohibition) Act, 1988, and whether the plaint could be rejected under Order VII Rule 11 of the Code of Civil Procedure (CPC).

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Marcel Martins v. M. Printer and others [(2012) 5 SCC 342] – Supreme Court of India: This case was relied upon by the appellant to argue that the father held the property in a fiduciary capacity. The Supreme Court in this case interpreted the term “fiduciary capacity” and held that the transaction was saved from the mischief of Section 4 of the Benami Act.
• Om Prakash and another v. Jai Prakash [(1992) 1 SCC 710] – Supreme Court of India: This case was relied upon by the respondent. The Supreme Court held that this case was misplaced because the issue there was whether prohibition under Section 4 would apply in relation to actions initiated before the coming into force of the Ordinance or not.
• R. Rajgopal Reddy through LRs. Vs. Padmini Chandrasekharaiah through LRs. [(1995) 2 SCC 630]– Supreme Court of India: This case was cited to settle that the issue whether the provisions of the Act are retrospective has already been settled.
• Popat and Kotecha Property vs. State Bank of India Staff Association [(2005) 7 SCC 510]– Supreme Court of India: This case was cited to explain the scope of Order VII Rule 11 of the Code of Civil Procedure (CPC).
• CBSE v. Aditya Bandopadhyay [(2011) 8 SCC 497] – Supreme Court of India: This case was cited to explain the terms “fiduciary” and “fiduciary relationship”.

Legal Provisions:

• Section 4 of the Benami Transaction (Prohibition) Act, 1988: This section prohibits suits to enforce rights in benami properties, but has exceptions for properties held by coparceners in a Hindu Undivided Family (HUF) or by those in a fiduciary capacity.
• Order VII Rule 11 of the Code of Civil Procedure (CPC): This rule deals with the rejection of plaints under certain circumstances.

Judgment

How each authority was viewed by the Court?

• The Court relied on Marcel Martins v. M. Printer and others [(2012) 5 SCC 342]* to define “fiduciary capacity” and held that the transaction was saved from the mischief of Section 4 of the Benami Act.
• The Court held that the reliance on Om Prakash and another v. Jai Prakash [(1992) 1 SCC 710]* was misplaced as it dealt with the issue of whether the Benami Act was retrospective.
• The Court cited R. Rajgopal Reddy through LRs. Vs. Padmini Chandrasekharaiah through LRs. [(1995) 2 SCC 630]* to emphasize that the issue of retrospectivity of the Benami Act has already been settled.
• The Court cited Popat and Kotecha Property vs. State Bank of India Staff Association [(2005) 7 SCC 510]* to explain that disputed questions cannot be decided at the time of considering an application under Order 7 Rule 11 CPC.
• The Court cited CBSE v. Aditya Bandopadhyay [(2011) 8 SCC 497]* to explain the terms “fiduciary” and “fiduciary relationship”.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure that cases involving potential fiduciary relationships are not dismissed at a preliminary stage without a full trial. The Court emphasized that the averments in the plaint suggested a possible fiduciary relationship between the father and son, which required a detailed examination of evidence.

The Court emphasized that “Whether the matter comes within the purview of Section 4(3) of the Act is an aspect which must be gone into on the strength of the evidence on record.” The Court also noted that, “Going by the averments in the Plaint, the question whether the plea raised by the appellant is barred under Section 4 of the Act or not could not have been the subject matter of assessment at the stage when application under Order VII Rule 11 CPC was taken up for consideration.” Additionally, the Court stated that “It cannot be said that the plea of the appellant as raised on the face of it, was barred under the Act.”

The Court did not discuss any minority opinions as the decision was unanimous.

The Court’s reasoning focused on the procedural aspect of whether a plaint could be rejected at the preliminary stage under Order VII Rule 11 of the CPC. The Court’s decision was influenced by the need to allow a full trial to determine the factual aspects of the case, especially when there was a possibility of a fiduciary relationship.

Key Takeaways

• A plaint involving a benami transaction with a claim of fiduciary relationship should not be rejected at the preliminary stage under Order VII Rule 11 of the CPC.
• The existence of a fiduciary relationship needs to be determined through a full trial, based on the evidence on record.
• The Supreme Court emphasized the importance of considering the factual context and evidence before deciding on the applicability of Section 4 of the Benami Transaction (Prohibition) Act, 1988.
• The Supreme Court reiterated that disputed questions cannot be decided at the time of considering an application filed under Order 7 Rule 11 CPC.

Directions

The Supreme Court directed the Trial Court to expedite the matter and dispose of the pending suit as early as possible, preferably within six months.

Development of Law

The ratio decidendi of the case is that a plaint involving a potential fiduciary relationship in a benami transaction should not be rejected at the preliminary stage under Order VII Rule 11 of the CPC. The court reiterated the importance of a full trial to determine the factual aspects of such cases. This decision reinforces the principle that disputed questions of fact should not be decided at the preliminary stage of a suit.

Conclusion

The Supreme Court allowed the appeal, setting aside the decisions of the lower courts. The Court held that the plaint could not be rejected at the preliminary stage under Order VII Rule 11 of the CPC, as the matter required a full trial to determine if a fiduciary relationship existed. The Court emphasized that the averments in the plaint suggested a possible fiduciary relationship between the father and son, which required a detailed examination of evidence.