Source: Supreme Court

Why in News?

Recently, the Supreme Court held that a person cannot raise a defence based on any right in respect of any property held benami either against the person in whose name the property is held or against any other person.

What was the Background of C. Subbiah @ Kadambur Jayaraj and Others v. The Superintendent of Police and Others Case?

• The complainant was appointed as a government teacher in 2007. Before this job he was doing real estate business for the last 16 years.
• The complainant came into contact with Subbiah and his wife. Through Subbiah, he met Chandrasekar, his son, wife and brother (accused). They were all involved in the real estate business.
• They forced the complainant to join their real estate business as they had strong political connections.
• They urged the complainant to enter into the land deals with the intention to defraud the complainant right at the inception of the transactions.
• As well as influencing the complainant to make investment in lands on the promise as they have political connections, they will help him to make profits.
• The complainant alleged that the accused (appellants) failed to pay his share.
• The complainant filed a complaint at the police station, but no action was taken.
• He approached Madras High Court and the High Court directed that he submits a fresh complaint to the District Superintendent of Police. Again, no First Information Report (FIR) was not registered.
• Then the complaint filed a complaint in the Court of the Jurisdictional Magistrate with a prayer to forward the same to the police under Section 156(3) of the Code of Criminal Procedure, 1973.
• After the court's direction, the FIR was registered, and a charge sheet was submitted.
• The complainant had also filed a civil suit for the same set of allegations which was pending before the District Judge.
• The accused (appellants) approached the High Court for assailing the FIR and the charge sheet. The High Court dismissed the petition.
• After that they filed an appeal by special leave before the Supreme Court.

What were the Court’s Observations?

• The Supreme Court (SC) refer the Section 2(a), Section 2(c) and Section 4 of the Benami Transactions (Prohibition), Act 1988 (Benami Act) applicable at the time of the alleged transactions.
• The SC observed that the complainant despite having made investments in the land deals which were evidently benami transactions, could not have instituted any civil proceedings for recovery against the persons in whose name, the properties were held which would be the accused appellants in this case.
• Since by virtue of the provisions contained in Sections 4(1) and 4(2) of the Benami Act, the complainant is prohibited from suing the accused for a civil wrong, in relation to these benami transactions, as a corollary, allowing criminal prosecution of the accused in relation to the self-same cause of action would be impermissible in law.
• The SC said that it cannot be doubted that a dispute which is purely civil in nature has been given a color of criminal prosecution alleging fraud and criminal breach of trust by misusing the tool of criminal law.
• The SC reiterated that in view of the clear bar contained in Section 4 of the Benami Act, the complainant could not have sued the accused appellants for the same set of facts and allegations which are made the foundation of the criminal proceedings.

What is Benami Transactions (Prohibition), Act 1988?

• Benami Property:
  • The word ‘Benami’ derived from Urdu which means ‘no name’ or ‘without name’.
  • Benami property includes any movable or immovable, tangible or intangible and right or any document evidencing title or interest in the property.
• Benami Transaction:
  • In Benami transactions the property is transferred to one person, but the consideration is provided or paid by another person.
  • This is a system where holding or acquiring property in names other than those of the real owners.
• Historical Background:
  • The transactions related to Benami Property were recognized for the first time by judiciary in 1778.
  • In the case of Gopeekrist Gosain v. Gungapersuad Gosain (1854) the Privy Council observed that Benami transaction warranted judicial recognition.
  • As there was no special provision in respect of benami transactions, it had legislative recognition through: Section 82 of the Trusts Act, 1882, Section 66 of the Code of Civil Procedure, 1908 (CPC) and Section 53 of the Transfer of Property Act, 1882 (TPA).
  • In 1972 a reference was made by the government to the Law Commission. The Commission in its 57^th report recommended that the Benami transaction should be declared an offence.
  • On the recommendations of the Commission, the Legislature enacted the Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988 in 1988.
  • After that, the Commission recommended enacting a new statue and based on the 130^th report of the Law Commission, the Benami Transactions (Prohibition) Act, 1988 was enacted.
  • A major change was made through the Benami Transactions (Prohibition) Amendment Act, 2016.
    • This Act came into force on 1st November 2016.
    • This Act expanded to 72 Sections from 9 Sections.
    • It defines different aspects of Benami transactions and introduces new offences and their penalties.
    • The amended law provides procedure for confiscation.

What is the Legal Provision Involved in this Case?

• Section 2 (a) of Benami Act: Definitions

benami transaction means any transaction in which property is transferred to one person for a consideration paid or provided by another person.

• Section 2 (c) of Benami Act: Definitions

property means property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property.

• Section 4 of Benami Act: 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.