AI Structured Summary
Not yet generated for this judgment
Judgment
M.N. Rao, J.—These two letters patent appeals are from the common judgment of a learned single Judge in A.S. Nos. 458 and 460 of 1979 which arose out of two suits O.S.Nos. 16 of 1977 and 48 of 1977 on the file of the II Additional District Judge, East Godavari at Rajahmundry.
Originally, O.S.No. 16 of 1977 was filed in the court of the Subordinate Judge, Rajahmundry as O.S.No. 44 of 1975 and subsequently, on transfer to the court of the II Additional District Judge, it was re-numbered as O.S.No. 16 of 1977. That suit was instituted by Makala Seetharamamma and her two daughters and two sons for declaration of title to the plaint schedule lands comprising five items aggregating Ac.9-41 cents and for a consequential permanent injunction restraining the defendants or their representatives from interfering with the plaintiffs'' possession and enjoyment. The first plaintiff was the widow of one Pulleswara Rao, son of the first defendant-Rathamma, wife of late Sanyasi who died on 18-12-1957. Pulleswara Rao, the husband of the first plaintiff and father of plaintiffs 2 to 5, died on 22-7-1968.
Late Sanyasi, the husband of the first defendant and father-in-law of the first plaintiff, was a businessman: he carried on money-lending business and also acquired agricultural lands. He and his son, Pulleswara Rao, the husband of the first plaintiff, were members of joint family. Rudru Suryanarayana, the father of the first plaintiff, borrowed certain amounts from Sanyasi by executing promissory notes and after the death of Sanyasi, it was ascertained that the total amount of indebtedness was to the tune of Rs. 11,818/-, but Pulleswara Rao agreed to take only Rs. 9,000/- from Rudru Suryanarayana. It was the case of the plaintiffs that Rudru Suryanarayana and his son-in-law, Pulleswara Rao had some disputes, as a result of which, the first plaintiff had to stay in her parents'' house. Rudru Suryanarayana, in full satisfaction of the entire debt due from him to Sanyasi, sold items 1 to 3 of the plaint schedule to late Pulleswara Rao for Rs. 9,000/-. But the sale deed, Ex.A-1 dated 22-6-1960, was executed in favour of the first defendant, benami, for the benefit of Pulleswara Rao. Under Ex. A-5, item 4 of the plaint schedule property was purchased by Pulleswara Rao in 1962 from one Nettala''Krishna Murthy (brother of D.W.3) for a consideration of Rs. 3,000/- and he obtained the registered sale deed dated 12-4-1962 in the name of his mother, the first defendant, benami, for his benefit. Out of the sale consideration of Rs. 3,000/-, Pulleswara Rao discharged the vendor''s debt of Rs. 1,500/- due to the Fruit Growers'' Co-op. Society of Rajahmundry and paid the balance of Rs. 1,410/- to the vendor before the Sub-Registrar at the time of registration. Item5oftheplaintschedule property was purchased by Pulleswara Rao for Rs. 3,000/- from one Mamilla Sastry (D.W.2) and obtained a sale deed dated 20th April, 1963 in favour of his mother, the first defendant, benami, for his benefit. In respect of this transaction, Pulleswara Rao discharged the promissory note debts due from the vendor to the tune of Rs. 2,554/- as recited in the sale deed and paid the balance of Rs. 446/- to the vendor before the Sub- Registrar. All the three sale deeds were thus got executed by Pulleswara Rao in favour of the first defendant, benami, for his benefit. The plaintiffs also asserted that the first defendant, Rathamma, had no property or money of her own and she had no capacity to purchase the plaint schedule properties. The entire sale consideration came from late Pulleswara Rao, although the sale deeds were obtained in the name of the first defendant. During his life time, Pulleswara Rao was in possession of these lands, cultivated the same and paid taxes. The title vested in him and the possession was with him. Neither the first defendant had title to these lands nor was she in possession at any time. On the death of Pulleswara Rao, the first plaintiff came into possession of the properties, cultivated the same in her own right and on behalf of the other plaintiffs and for over a period of 12 years, the plaintiffs and their predecessor in title, late Pulleswara Rao, were in exclusive possession and enjoyment of the plaint schedule properties adverse to the claim and title of the first defendant. The plaintiffs also alleged that on the evil advice of the village Karanam of Undeswarapuram-oneMr.KuchimanchiIyyaparaju,D.W.5-thefirstdefendant executed a registered settlement deed Ex.B-6 dated 14-3-1975 in favour of the second defendant; who is her distant relation (daughter of first defendant''s sister). Subsequent to the filing of the suit, items 4 and 5 were sold by the first defendant in favour of the 6th defendant, the wife of Iyyaparaju, (D.W.5) under a registered sale deed Ex.B-5 dt.30-6-1975 for a consideration of Rs.l0,000)/-. The plaintiffs filed an application for amendment of the plaint questioning the validity of Ex.B-5 dated 3-6-1975 alleging that there was no consideration for the said document and it was the result of manipulation by Iyyapuraju, the Village Munsif (husband of D.6). The trial court allowed that application as the transaction had taken place subsequent to the filing of the suit.
Resisting the suit, the first defendant filed written statement contending that her husband, Sanyasi, had no ancestral property and all the acquisitions were made by him during his life time. She claimed that the consideration for purchase of items 1 to 3 of the plaint schedule under Ex.A-1 was paid in its entirety by her and there was no contribution a tall from her son, late Pulleswara Rao. Denying the benami nature of the transactions she asserted that there were no disputes between her son, Pulleswara Rao and Rudru Suryanarayana, his father-in-law and the father of the first plaintiff. During his life time, her son Pulleswara Rao acquired some properties. As regards the sale deed Ex.A-5 dated 12-4-1962, under which item 4 of the plaint schedule properties was purchased by her, she pleaded that she paid the consideration but her son, Pulleswara Rao, attended on her behalf to the office of the Sub-Registrar. The discharge of the debts of the vendor recited in that document was by her but not by her son, Pulleswara Rao. The same was the plea of the first defendant in regard to the purchase of item 5 of the plaint schedule properties under Ex. A-6 dated 20th April, 1963. She positively pleaded that she herself discharged t the promissory note debt recited in Ex.A-6. There was no apparent cause or motive for her son, Pulleswara Rao to obtain the sale deeds, benami, in her name and during his life time, he did not assert any rights in relation to these properties. She denied the allegation that the plaintiffs have been in possession of the suit schedule properties. As regards the source for purchase of the properties, her case was that she had ''streedhana'' property consisting of cash and jewels given by her parents and husband. After the death of her husband, who had extensive money lending business, cash and jewellery, she inherited all the properties along with her son, late Pulleswara Rao, her only issue. She and her son, Pulleswara Rao divided the cash and the debts due to late Sanyasi; the debts due to her husband mentioned in Ex.A-1 were allotted to Pulleswara Rao. In that partition, she got cash of Rs. 25,000/-, and the immovable properties inherited by her, she kept jointly with her son, Pulleswara Rao and after his death, with the plaintiffs. Her son used to look-after the family affairs and managing the properties and he thus stood in a fiduciary capacity towards her. Sometime prior to the suit, there were disputes between her and the first plaintiff, as a result of which, she was compelled to leave the house for her own personal safety and the reason for this was her refusal to convey the suit properties to the plaintiffs. Under Ex.B-6, registered settlement deed, she conveyed item 1 of the plaint schedule properties to the second defendant, her sister''s daughter, out of love and affection. She also admitted that items 4 and 5 of the plaint schedule properties were sold by her under Ex.B-5 to the sixth defendant for valuable consideration.
The second defendant, in her written statement, pleaded that the first defendant, out of love and affection, executed the settlement deed Ex.B-6, in her favour and that she has been in possession of that property since the date of execution. The sixth defendant, the purchaser of items 4 and 5 under sale deed Ex.B-5, asserted in her written statement that she is a bona fide purchaser for valuable consideration of Rs. 10,000/- and since the date of purchase, she has been in possession of the properties. She denied the allegation that her husband (D.W.5) manipulated the sale deed.
The sixth defendant filed O.S.No. 48 of 1977 seeking permanent injunction against the first plaintiff in O.S.No. 16 of 1977 and two others alleging that they were interfering with her possession and enjoyment of the properties covered by the sale deed Ex.B-5.
As both the suits were inter-connected, the learned trial Judge tried them together. After the filing of the written statement, the first defendant died. The first plaintiff gave evidence as P.W.2 and on her behalf, four other witnesses were examined, of whom, P.W.I is her elder brother. On behalf of the defendants, five witnesses were examined. D.W.5 is the husband of the sixth defendant and D. W. 1 is the nephew of the first defendant. During the pendency of the suit, the second defendant died and defendants 3 to 5 were brought on record as her legal representatives. Issue No. 3 in O.S.No. 16 of 1977 pertains to the validity of the alleged benami nature of Exs.A-1, A-5 and A-6 under which items 1 to 5 of the plaint schedule properties were purchased by the first defendant - Ex.A-1 (covering items 1 to 3), Ex.A-5 (covering item 4) and Ex. A-6 (covering item 5).
The learned trial Judge, after considering the evidence - both oral and documentary - held that there was no evidence to show about any division of properties between the first defendant and her son, Pulleswara Rao nor was there any evidence to the effect that the first defendant got any property or cash or jewels from her parents. Items 1 to 3 covered by Ex.A-1 were purchased by Pulleswara Rao alone from "Rudru people" (first plaintiff''s father and brothers) in discharge of debts due by them to Pulleswara Rao and Sanyasi. As regards Exs.A-5 and A-6 sale deeds pertaining to the acquisition of items 4 and 5 of the plaint schedule properties, the learned trial judge held that Pulleswara Rao paid the balance of consideration after discharging the debts of the vendors. Pulleswara Rao obtained the sale deeds, benami, during the period 1960-64, when his wife, the first plaintiff, was compelled to stay in her parents'' house because of the disputes between her husband and her father. It was only after the disputes were settled and the first plaintiff joined her husband, Pulleswara Rao purchased some other property in his own name under Ex.A-7, registered sale deed dated 11-5-1966. The sale deeds, Exs.A-1, A-5 and A-6, according to the learned trial Judge, "though stand in the name of the first defendant are benami for the benefit of Makala Pulleswara Rao". The plea of adverse possession was negatived on the ground that the plaintiffs and Pulleswara Rao have always been in possession and enjoyment of the properties covered by Exs.A-1, A-5 and A-6 and therefore, the question of the plaintiffs perfecting the title by adverse possession does not arise. The settlement deed Ex.B-6 dated 14-3-1975 in respect of item 1 of the plaint schedule properties was held to be invalid since the first defendant had no title in respect of the said plaint schedule property. The sale deed Ex.B-5 under which the first defendant conveyed items 4 and 5 of the plaint schedule properties to the fifth defendant for a consideration of Rs. 10,000/- was held to be invalid and inoperative as the first defendant had no valid title to convey. The learned trial Judge also found that the sixth defendant was not in possession of the property on the date of filing of the Suit O.S.No. 48 of 1988 for permanent injunction; she had knowledge of the pendency of the suit O.S.No. 16 of 1977 by the date of the purchase of property under Ex. B-5. Basing on the above findings, the trial court decreed the suit O.S.No. 16 of 1977 for declaration and injunction and dismissed the suit O.S.No. 48 of 1977 filed by the sixth defendant for permanent injunction.
Two appeals were preferred to this court against the two suits. A learned single Judge, by a common judgment, dismissed O.S.No. 16 of 1977 and decreed O.S.No. 48 of 1977. The learned Judge held that as considerable properties were acquired by Sanyasi during his life time, after his death, the first defendant and her son, Pulleswara Rao jointly inherited the properties in equal shares and, therefore, "it is a misnomer to think that the first defendant had no property of her own. If Pulleswara Rao was capable of purchasing land in his name (under Ex. A-7) from out of his share of the properties, equally the first defendant was capable of paying consideration for the properties purchased in her name under Exs.A-1, A-5 and A-6". The first defendant''s father, according to the learned single Judge, must have given some jewellery and cash to her at the time of marriage and subsequently also. The motive for purchase of the lands, benami, by Pulleswara Rao in the name of his mother, the first defendant, was rejected by the learned Judge. As the first defendant was old and living with her son, Pulleswara Rao, he was looking after her properties and after his death, the first plaintiff "must have been looking after the affairs of the first defendant", which would not entitle the first plaintiff to claim that she has been in possession of the properties covered by Exs.A-1, A-5 and A-6. The learned Judge accepted the evidence of D.W.4, the attestor of the sale deed, Ex.B-5, under which the first defendant sold items 4 and 5 of the plaint schedule properties in favour of the sixth defendant for a consideration of Rs. 10,000/-. The evidence of D.W.5, the husband of the sixth defendant, as to the payment of the consideration of Rs. 10,000/- was also believed by the learned single Judge, and consequently, the plaintiffs'' allegation that the transaction was devoid of consideration was rejected.
In the result, the learned single Judge dismissed the suit O.S.No. 16 of 1977 and allowed the appeal A.S. No. 458 of 1979 preferred against O.S.No. 16 of 1977. Consequently, the appeal A.S.No. 460 of 1979 filed against O.S.No. 48 of 1977 was also allowed with a direction to the receiver to put the plaintiff in O.S.No. 48 of 1977 (sixth defendant in O.S.No. 16 of 1977) in possession of the property covered by Ex.B-5 as she is entitled to permanent injunction sought by her.
During the pendency of these two Letters Patent Appeals, the Benami Transactions (Prohibition) Act, 1988 (hereinafter referred to as "the Act") came into force on 5-9-1988 changing the complexion of the litigation.
It was argued by Mr. C. Poornaiah, the learned counsel for the appellants (plaintiff s in O.S.No. 16/77 and defendants in O.S.No. 48 of 1977) that on the date of the death of Sanyasi, his son Pulleswara Rao and the first defendant succeeded to the properties in equal shares and as they continued to live jointly, the consideration for the purchase of plaint schedule properties came from joint family funds; the plaintiffs are entitled to half share in the plaint schedule properties. As Pulleswara Rao and the first defendant lived jointly and in view of the total absence of evidence regarding the alleged partition of the properties between the first defendant and her son, Pulleswara Rao, as pleaded in the written statement of the first defendant and when the properties were purchased in the name of the first defendant, the plaintiffs are entitled to half share as class-I heirs on the death of Pulleswara Rao. As regards the applicability of the Act, the contention advanced by the learned counsel is that the first defendant, in whose name the properties were purchased, was standing in a fiduciary capacity vis-a-vis Pulleswara Rao, her son and, therefore, the transactions are saved by clause (b) of sub-section (3) of Section 4 of the Act.
In opposition to the above, Mr. M.S.K. Sastry, the learned counsel for the respondents (defendants in O.S.No. 16 of 1977 and plaintiff in O.S.No. 48 of 1977) has argued that in view of the specific pleadings in the plaint as to the benami nature of the plaint schedule properties, the suit for declaration (O.S. No. 16 of 1977) must be dismissed. Section 4(3)(b) of the Act has absolutely no application; the first defendant, the mother of Pulleswara Rao, could not be said to be a trustee nor did she stand in a fiduciary capacity vis-a-vis her son, Pulleswara Rao, but on the other hand, it was Pulleswara Rao, who could be said to be the trustee for the benefit of his mother, the first defendant.
We shall take up first, the question whether the suit O.S.No. 16 of 1977 is liable to be dismissed by virtue of the provisions contained in the Act.
The expression "benami" is commonly understood (i) where properties are sold by one individual to another, but the latter mentions a third person''s name as the purchaser; and (ii) where one sells property to another without intending to transfer title this is called a sham transaction.
Section 2(a) of the Act defines ''benami transaction'' as meaning:
"Any transaction in which property is transferred to one person for a consideration paid or provided by another person".
The expression ''property'' is defined by clause (c) as meaning:
"property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property".
Section 3(l) enjoins that no person shall enter into any benami transaction. Sub-section (2) carves out an exception to the effect that if any property is purchased by a person in the name of his wife or unmarried daughter, it shall be presumed, unless the contrary is proved, that the purchase of the property is for the benefit of the wife or the unmarried daughter and those transactions are not hit by the embargo contained in sub-section (1) of Section 3. The violation of the statutory injunction contained in sub-section (1) is made penal by sub-section (3) - the breach in this regard is punishable with imprisonment for a term which may extend to three years or with fine or with both. Sub-section (1) of Section 4 prohibits the right to recover any property held benami. Sub- section (2) bars any defence based on any right in respect of any property held benami. Sub-section (3) excepts properties held in the names of co-parceners, trustees and other persons standing in a fiduciary capacity. It reads:
"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."
Sections 5, 6 and 7 are not relevant for these appeals.
The specific averments in the plaint are to the effect that all the three sale deeds Exs. A-l, A-5 and A-6 "were got executed by Pulleswara Rao in favour of the first defendant, benami, for his benefit" and that the consideration came from late Pulleswara Rao. Admittedly, the sale deeds stood in the name of the first defendant. The definition of ''benami transaction'' under clause (a) of Section 2 of the Act comprehends every transaction in which property is transferred to one person for a consideration paid or provided by another person. Sub-section (1) of Section 4 bars the right of suit for claiming any right or interest in respect of any property held benami against the person in whose name the property stands. As it is the case of the plaintiffs that the consideration was provided by Pulleswara Rao for the properties that stood in the name of the first defendant, undoubtedly, the transactions are benami in nature. The plaintiffs, therefore, could not owing to statutory injunction institute action claiming a right in respect of the properties in question. The real owner or anyone claiming on his behalf is statutorily deprived by sub-section (2) of Section 4 to set up any defence in respect of the property held benami. The savings clauses of Section 3 (sic. sub-section (3)) have no application. The first defendant, in whose name the properties stood, being a woman, is not a coparcener of the joint family consisting of herself and her son, late Pulleswara Rao. Therefore, it could not be said that the property was held by the first defendant for the benefit of the other coparceners of the family. Clause (a) of Section 3 (sic. sub-section (3)) is thus totally inapplicable. Equally inapplicable is clause (b) of Section 3 (sic. sub-section (3)). The first defendant could never be said to be the trustee, nor could it be said that she stood in a fiduciary capacity vis-a-vis her son Pulleswara Rao. It was only when the person in whose name the property stands is a trustee or stands in a fiduciary capacity and the property is held for the benefit of another, clause (b) of Section 3 (sic. sub-section (3)) is attracted. In the present case, the vendors, under Exs.A-1, A-5 and A-6, parted with their properties and so, the transactions clearly fall within the ambit of Section 2(a) of the Act. The evidence discloses that Pulleswara Rao was managing the properties. He discharged the debts of the vendors under Exs.A-5, A-6 and he was present at the office of the Sub-Registrar when the transactions took place. He was enjoying the confidence of his mother, the first defendant, and she being the beneficiary, the position of Pulleswara Rao was that of a trustee vis-a-vis his mother, but not vice versa.
The Act has taken away the right of the real owners to bring actions for enforcement of their rights. The Act, being declaratory in nature, the statutory right of deprivation of the real owners enacted in sub-sections (1) and (2) of Section 4 applies to past transactions as well. The prohibition contained in sub- section (1) of Section 3 that no person shall enter into any benami transaction, although, has no retrospective operation/the deprivation of the remedy by Section 4 has retrospective operation encompassing all transactions that came into being, anterior to the Act. Interpreting Section 4, the apex Court in Mithilesh Kumar and Another Vs. Prem Behari Khare, held:
".....once a property is found to have been held benami, the real owner is bereft of any defence against the person in whose name the property is held or any other person. In other words, in its sweep, Section 4 envisages past benami transactions also within its retroactivity. In this sense, the Act is both a penal and a disqualifying statute."
The appellate Court must necessarily take into account the provisions of the Act in the appeals arising out of suits for recovery of benami property. In Om Prakash and another Vs. Jai Prakash, , this legal position was made explicit. The Supreme Court held:
"In a suit for recovery of benami property, if any appeal is pending on the date of coming into force of Section 4, the appellate court can take into account the subsequent legislative changes."
In that case, the alleged real owner instituted the suit, which was dismissed by the trial court, but reversed by the first appellate court and the second appeal ended in dismissal. When the SLP was pending in the Supreme Court, the Act came into force. Dealing with the question whether the Act would apply to the appeal, the Supreme Court set at rest all doubts in this regard. It held:
"It is well settled that an appeal is a continuation of suit and in the present case, the appeal was pending before this Court. There is no manner of dispute that the present suit had been filed by the plaintiff-respondent claiming that he was the real owner of the property and the names of the defendants-appellants were mentioned in the sale deeds as benami. In our view, Section 4 of the Benami Act is a total prohibition against any suitbased on benami transaction and the plaintiff-respondent is not entitled to get any decree in such suit or in appeal."
Following the aforesaid authoritative pronouncement, we hold that in view of the statutory prohibition enacted in Section 4 of the Act, the suit (O.S.No. 16 of 1977) is liable to be dismissed.
Sri Poornaiah, the learned counsel for the appellants, has argued that as it was specifically pleaded by the first defendant in her written statement that there was division of the properties after the death of her husband, Sanyasi, and in that division, she got jewels and cash of Rs. 25,000/-, her successors-in-interest viz., defendants 2 and 6 are bound by the said averments. As long as the family is joint, a suit for partition is maintainable.
As a principle of law, there is little doubt that defendants 2 and 6, being the successors-in-interest of the first defendant, are bound by the averments contained in her written statement. It is equally unexceptionable that as long as the family continues to be joint, a suit for partition is maintainable in respect of the joint family properties. Neither of these two principles will be of any help to the appellants. The suit O.S.No. 16 of 1977 was instituted not for partition of joint family properties but for declaration of plaintiffs'' title and exclusive possession of the plaint schedule lands and for a consequential relief of permanent injunction on the specific pleading that the sale deeds Exs.A-1, A-5 and A-6 were executed by Pulleswara Rao (husband of the first plaintiff) in favour of his mother, the first defendant "benami, for his benefit" and that the consideration for the three transactions was paid by Pulleswara Rao. The plaintiffs, therefore, cannot take a diametrically opposite stand at the stage of the L.P. A., contending that the suit was in truth and effect only for partition and as Pulleswara Rao succeeded to the extent of half of the properties left behind by his father, Sanyasi, the plaintiffs are entitled to the extent of one half of the plaint schedule lands.
Apart from being a totally new case, the stand of the plaintiffs does not appear to accord with the facts. It is difficult to believe that after the death of Sanyasi, there was no division of properties. Although, the stand of the first defendant in her written statement was that there was such a division, owing to her death, no positive evidence could be adduced in that regard. Even so, from the available evidence, such a division is discernable. P.W.I, who is none else than the brother of the first plaintiff, in his evidence has categorically admitted that late Sanyasi had acquired Ac. 10-00 of land and a house and had extensive money-lending business. Pulleswara Rao, the husband of the first plaintiff, had acquired Ac.2-50 cents of land under Ex. A-7 dated 11-5-1966 in his name was also admitted by P.W.I. P. W.7 was one of the attestors of Ex. A-7. This property, Ac.12-50 cents, (sic. Ac.2-50 cents) is not part of the plaint schedule lands. The first defendant did not claim any share in respect of this Ac.12-501 cents of land. Exs.A-8 to A-20 are tax receipts in the name of the first plaintiff in respect of the lands other than the plaint schedule lands. It would, therefore, appear that there was some arrangement after the death of Sanyasi, by which, Pulleswara Rao became entitled to the immovable properties left behind by his father without any share being claimed by his mother, although she was a class-I heir. We cannot also overlook the fact that all the properties were acquired by Sanyasi and this was also admitted by P.W. 1 in his evidence. Thus, by the date of the suit, the plaintiffs were in possession in their own right not only the immovable properties left behind by Sanyasi but also Ac.2-50 cents of land acquired by .Pulleswara Rao under Ex.A-7. It was possibly due to these reasons, the plaintiffs did not ask for the relief of partition.
We are not inclined to accept the argument advanced by Sri Poornaiah, learned counsel for the appellants, based upon the decision of a Division Bench of this court in A. Lakshmamma (died) v. A. Venkatarama Reddy 1991(1) ALT 93 that the transactions in question were only nominal or sham but due to ignorance, the plaintiffs have taken the stand that they were ''benami'' transactions. The essential feature in a nominal or sham transaction is that ''the owner of the property executes conveyance in favour of another without the intention of transfering the title to the property thereunder", Thakur Bhim Singh (Dead) by Lrs and Another Vs. Thakur Kan Singh, . Only when the properties were sold depending upon the intention of the vendor, the question whether it was a sham transaction or a genuine one has to be determined. As pointed out by the Supreme Court in Meenakshi Mills, Madurai Vs. The Commissioner of Income Tax, Madras, where one person purports to sell his property to another person without intending that his title should cease or pass, the transaction is nominal or sham. In a benami transaction, "there is an operative transfer resulting in the vesting of title in the transferee" as instructively expounded by Venkatarama Ayyar, J.
In Lakshmamma''s case (3 supra), the plaintiffs instituted action for partition of the joint family properties. The second plaintiff is the widowed daughter-in-law of the third defendant, Lakshmamma, whose husband was one Rami Reddy. Item 6 of the plaint A schedule property in that case related to Ac.3-00 of land. The plea taken was that by selling certain properties belonging to the joint family, the late father-in-law of the second plaintiff and the husband of the third defendant, purchased item 6 but obtained the sale deed ''benami'', in the name of his daughter, the fifth defendant. In the written statement, the stand taken was that item 6 was jointly purchased under Ex. A-2 dt.15-5-1968 for Rs. 19,000/- in the names of defendants 1 and 2 (sons of the third defendant), Venka Reddy, the predeceased son of the third defendant and husband of the second plaintiff, and the third defendant and that the third defendant was the exclusive owner of the Ac.3-00 of land. There was no evidence that the third defendant had capacity to purchase the said Ac.3-00 of land with her own funds and the finding recorded was that the said item was purchased with the joint family funds and, therefore, would partake of the character of joint family property. Dealing with the question whether the assertion of the plaintiffs in the suit that the purchase was benami, the Division Bench observed:
"The written statement does not mention that there was any motive in purchasing 3 acres benami in the name of Lakshmamma. Further, normally a plea of benami would arise in a case where a person purchased the entire property in the name of a benamidar but here the property is purchased in the name of the three sons and their mother Lakshmamma and it is from that fact that the defendants-sons went to support a plea of benami. In our view, the allegation in paragraph 9 of the plaint has to be understood as a plea that the mother''s name was "nominally" included in Ex.A-2 transaction in 1968 and that the plaintiffs really intended to say that the sons who are the purchasers never contemplated that Lakshmamma would be the benamidar for her sons. We are, therefore, in entire agreement with the view taken by the learned single Judge that by the word "benami" used in para 9 of the plaint, the plaintiffs only intended to raise a plea of the "nominal" inclusion of Lakshmamma''s name in the document as a purchaser. In that view of the matter, Section 4 of the Benami Transactions Prohibition Act, 1988 does not come in the way of the plaintiffs claiming 1/3rd share in 3 acres of item 6 of the plaint A schedule".
With great respect to the learned Judges of the Division Bench, we express our inability to agree with the view that Ex.A-2 transaction in that case was a nominal one: under Ex.A-2 title passed and consideration was paid. Only when property was sold, the question falls for consideration whether it was a sham or nominal transaction - whether the vendor really intended to pass title or wanted to retain the title in himself. On the other hand, when property was purchased, the question would arise as to the alleged benami nature of the transaction.
Although both the transactions are commonly described as benami transactions, the essential difference between the two, in the words of Venkatarama Ayyar, J: (5 supra)
".... in the former (benami transaction) there is an operative transfer resulting in the vesting of title in the transferee, in the latter (nominal or sham transaction) there is none such, the transferor continuing to retain the title notwithstanding the execution of the transfer deed".
Only the first category of transactions can be described as benami transactions within the meaning of Section 2(a) of the Act. The second category - sham or nominal transactions - are not comprehended by the expression ''benami transaction'' as defined by Section 2(a). In a benami transaction u/s 2(a), there must be a transferor, a real owner and a benamidar. The person who parts with the property is the transferor, the person who pays the consideration is the real owner and the one in whose name the document is obtained is the benamidar. In a sham transaction, no transfer of property is effected and the transferor continues to retain the title. Such a transaction is, therefore, outside the purview of Section 2(a) of the Act.
Recently, a Full Bench of the Orissa High Court in Keshab Chandra Nayak Vs. Laxmidhar Nayak and Others, summed up the legal position as to the essential differences between ''benami'' and ''sham transactions'':
"The benami transaction is one which evidences an operative and valid transfer resulting in the passing of title in the transferee, whereas in the sham transaction, there is no valid transfer of interest, though ostensibly the deed incorporating the transaction seeks to clothe the transferee with the title in the property. Sham transaction takes place, inter alia, when there is no consideration for the transfer. In such a case, if the transferor wants to assail the validity of the transaction, he shall have to seek cancellation of the document because so long as the document stands, the transferee would remain clothed with the title to the property. In case of benami transaction, however, what happens is that the document has legal effect being perfectly valid document in the sense that if it be a sale deed, the same having been executed on the passing of consideration, but the question involved is who is the person who is the true owner of the property - whether it is the transferee named in the deed of somebody else, the transferee being a benami. In such a case, the aggrieved person does not demand, indeed would not demand, cancellation of the sale deed because, if the deed would be cancelled, he as well would not be clothed with any right, title or interest over the property which had been the subject matter of the sale deed. This would be directly against his interest inasmuch as he wants to derive right, title and interest over the property on the strength of the concerned sale deed'' itself, but wants a declaration that it is he who had derived title and not the person named as transferee in the document. On the other hand, in the case of a sham transaction (loosely called as benami transaction), the aggrieved person may, in some cases, require cancellation of the deed where the transaction is of voidable nature. This would become clear from what is being stated later about the nature of sham transaction."
Therefore, it would appear that in a suit for partition, if a plea was taken that one of the members of the joint family had purchased an item of property with the joint family funds but obtained the document in the name of another member of the joint family, the transaction could not be described as sham or nominal as the vendor received consideration and parted with the title.
The question whether the savings provision contained in clause (a) of sub-section (3) of Section 4 of the Act extends to properties held by a member of a joint family for the benefit of the other members does not arise for consideration in these appeals and, therefore, we leave that question open.
In the instant case, it was nobody''s plea nor was there anything discernable from the evidence, even remotely, that any of the transferors under Exs.A-1, A-5 and A-6 intended to retain their title to the properties conveyed by the documents. On the other hand, the plaintiffs led evidence that the first plaintiff has been in possession of the properties after her husband''s death and the evidence adduced on behalf of the first defendant was to the effect that she was living jointly with her son, Pulleswara Rao after her husband''s death and that she was in possession of the properties.
As the suit O.S.No. 16 of 1977 was not filed for partition of the joint family properties, we feel it unnecessary to refer the matter to a Full Bench.
As the suit O.S.No. 16 of 1977 is not maintainable by virtue of the proviso contained in Section 3(1) and Section 4(1) and (2), L.P.A.No. 350 of 1985, which arises out of O.S.No. 16of 1977, must fail. When the suit for declaration itself was not maintainable, it could not be said that the first defendant had no legal capacity either to alienate items 4 and 5 under the sale deed Ex.B-5 in favour of the sixth defendant or settle items 1 to 3 under Ex.B-6 in favour of her niece, the second defendant. Consequently, L.P.A. No. 351 of 1985 also must fail.
Accordingly, affirming the common judgment of the learned single Judge in A.S.Nos. 458 and 460 of 1979, although for different reasons, we dismiss both the letters patent appeals. No costs.