Benami Transactions: Analysis Of Latest Judgement Of The Supreme Court In Mangathai Ammal vs. Rajeswari

In Mangathai Ammal vs. Rajeswari, the Supreme Court has explained the law on statutory presumption and burden of proof in the context of the 1988 Act as well as the 2016 amendment. It has also considered whether the said amendment can be treated as retrospective and applicable to earlier transactions. Advocates Ashwani Taneja & Renu Taneja have highlighted the salient points of the judgement and explained its practical relevance

Case Analysis of recent judgment of the Supreme Court in the case of Mangathai Ammal (Died) through LRs &Ors. vs Rajeswari & Ors. (Civil Appeal Number 4805 of 2019)

The above said judgment passed by the Supreme Court, as recent as on 9th May 2019, is of great significance for many reasons.

Firstly, it has upturned and reversed the findings of both the lower authorities i.e. the Trial Court as well as the High Court.

Secondly, in this process it has given fine principles of jurisprudence dealing with the Benami Law.

Third, the Court has also taken notice of existence of Benami Transaction (Prohibition) Act 1988, amendments made in it by Amendment Act of 2016 and amended Act namely, Prohibition of Benami Property Transaction, 1988 (as amended by Amendment Act of 2016)

Fourth, the present judgment will give ample guidance to the officers who are passing orders under the new Benami Law so as to enable them to pass the orders in accordance with law and especially with respect to the onus upon them and not out of their ignorance of correct position of law, as is happening presently in most of the cases.

Further many persons who are adversely affected by the new Benami Law are suffering a lot due to lack of proper guidance about the correct position of law to defend their cases whenever Show Cause Notices are issued by the Initiating Officers under the new Benami Law alleging that the property held by a person is benami.

Let’s first discuss brief facts of the case:

Proceedings before the Trial Court

The Plaintiff No. 1, Mrs.Rajeswari (wife of Mr.Elumalai) (along with others) had filed a suit for partition against the Defendant No. 1 viz. Mrs.MangathaiAmmal (wife of late Mr. NarayansamyMudaliar) who happened to be her mother-in-law sinceMrElumalaiwas son of aforesaid late Mr. NarayansamyMudaliar and Mrs. MangathaiAmmal (Defendant No. 1) alongwith others on the ground that suit properties were ancestral properties and her late husband ( namely MrElumalai) had inherited the same being legal heir for his share along with others.

The suit was resisted by Defendant No. 1 (namely Mrs. MangathaiAmmal) on the ground that suit properties were her self-acquired properties and thus the plaintiffs had no right of inheritance in it. Thus, the Trial Court framed the issues which centeredaround the main issue as to whether the suit properties were ancestral properties of the plaintiff and were jointly enjoyed by all the family members as Joint Family Property as Defendant No. 1 had merely managed the properties as manager of the family.

The Trial Court decided in favour of the Plaintiffs and passed a Judgment and Decree by giving a finding that the Plaintiffs are entitled to suit properties the same being ancestral properties and the Plaintiffs being legal heirs.

Proceedings before the High Court:

The original Defendants filed an appeal before the High Court of Madras, against the judgment and decree passed by the Trial Court. However, the High Court dismissed the appeal and confirmed the judgment and decree passed by the Trial Court.

Thus, feeling aggrieved the Defendants filed an appeal before the Supreme Court against the order passed by the High Court of Madras.

Before the Supreme Court:

Arguments of the Appellant (i.e. Original Defendants, who had lost the battle before the lower authorities):

It was argued that both the lower authorities had erred in factual appreciation of the matter and wrongly applied the concept of Benami transactions. It was inter-alia argued that:

(1) The suit properties were purchased by Defendant no.1 (Appellant here) out of the ‘stridhana’ she received from her parents and by selling the gold jewellery.

(2) Admittedly, the suit properties were purchased in the name of original Defendant no.1 and were in possession of Defendant no.1.

(3) If it was the case on behalf of the original Plaintiffs (Respondents here) that the properties purchased in the name of Defendant no.1 were the benami transactions, in that case, the onus is/was upon the Plaintiffs (Respondents here) to prove by leading cogent evidence that the transactions were benami transactions.

(4) Both, the Trial Court as well as the High Court had erroneously shifted the burden upon the Defendants to prove that the transactions/Sale Deeds in favour of Defendant no.1 were not benami transactions. The action of lower authorities is contradictory to settled provision of law laid down by the Hon’ble Supreme Court.

(5) Merely because some consideration or part consideration was paid by the husband at the time of purchase of property and/or merely purchasing the stamp papers while purchasing the property, it cannot be said that the same properties as such were purchased from the funds raised by selling the ancestral properties and/or the same were purchased for and on behalf of the joint family.

(6) From the facts and circumstances of the case, even it can be said that the intention of the Narayanasamy Mudaliar to purchase the properties in the name of Defendant no.1 (his wife) (Appellant here) was in order to provide the wife with a secured life in the event of his death.

(7) The Plaintiffs (Respondent here) have failed to discharge the onus to prove that the transactions were benami transactions and have failed to prove by leading cogent evidence that the transactions of sale in favour of the Defendant no.1 were benami transactions.

(8) Even otherwise on merits also and on considering the recent decision of this Court in the case of P. Leelavathi v. V. ShankarnarayanaRao(2019) 6 SCALE 112, in which after considering the earlier decisions of this Court in the case of JaydayalPoddar v. BibiHazra (Mst.) (1974) 1 SCC 3; Thakur Bhim Singh v. Thakur Kan Singh (1980) 3 SCC 72; Binapani Paul v. PratimaGhosh(2007) 6 SCC 100 and Valliammal v. Subramaniam(2004) 7 SCC 233, it cannot be said that the Sale Deeds executed in favour of defendant no.1 were benami transactions.

Arguments of the Respondents (i.e. the original Plaintiffs, in whose favour judgments and Decree were passed by the Trial Court as well as the High Court)

(1) Both, the Trial Court as well as the High Court, have rightly held that thetransactions of sale in favour of Defendant no.1 were benami transactions as the said properties were purchased byLate Mr.NarayanasamyMudaliar in the name of Defendant no.1 out of thefunds received from selling the ancestral properties.

(2) In the present case, all the conditions to prove the transactions as benami transactions as laid down by this Court in the case of P. Leelavathi(Supra) have been satisfied.

(3) Even from the intention and conduct of the parties it is proved that though the properties were in the name of Defendant no.1, they were purchased and enjoyed as ‘Joint Family Properties’.

(4) The suit properties were purchased in the name of Defendant no.1 during the lifetime of Narayanasamy Mudaliar. It was also submitted that the original Defendant no.1 had no independent income.

(4) That even the statutory presumption which was rebuttable under Section 3 (2) of the Benami Transaction Act, 1988 has been omitted by Benami Amendment Act of 2016.Therefore as on date, there is no such statutory presumption that the purchase made in the name of wife or children is for their benefit.

Decision of The Supreme Court and fine principles of Benami law discussed therein:

The Supreme Court speaking through Justice M R Shah (along with  Justice L. Nageswara Rao) laid down and reiterated few fundamental principles of law for deciding a transaction or a property as benami and passed a landmark judgment in this process.

The Supreme Court did not agree with the findings and decision given by the Trial Court and the High Court. The foremost point noted by the Supreme Court was that it was not specifically pleaded by the Plaintiffs (now Respondent) before the lower authorities that the sale deed/transactions in favour of the Defendant no. 1 (now Appellant) were Benami transactions and even the Trial Court did not specifically frame the issue that whether the transactions/Sale Deeds in favour of Defendant no.1 are benami transactions or not? However, despite the above, the Trial Court and the High Court have held that the transactions/Sale Deeds in favour of Defendant no.1 were benami transactions.

Thereafter, the Supreme Court in its present judgment held that before deciding whether a transaction is benami or not, the principles of law in this regard laid down by the SC in various earlier judgments are required to be considered.

Some of these judgments were discussed in the present order and principles of law decided therein were discussed reiterated in the order, as briefly summarized hereunder:

Relying upon the judgment of JaydayalPoddar v. BibiHazra (Mst.) (1974) 1 SCC 3, it was reiterated that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be held. It is further observed that this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of the benami transaction or establish circumstances unerringly and reasonably raising an interference of that fact.

Relying upon the judgment of Thakur Bhim Singh v. Thakur Kan Singh (1980) 3 SCC 72it was reiterated that:

“18. The principle governing the determination of the question whether a transfer is a benami transaction or not may be summed up thus:

(1) The burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction;

(2) It is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary;

(3) The true character of the transaction is governed by the intention of the person who has contributed the purchase money and

(4) The question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct, etc.”

Relying upon its recently pronounced judgment of P. Leelavathi v. V. ShankarnarayanaRao(2019) 6 SCALE 112it was reiterated that in view of Supreme Court’s judgment in the case of Binapani Paul v. PratimaGhosh(2007) 6 SCC 100,the source of money has never been the sole criteria but one of the relevant criteria’s which is not determinative in character.

And relying upon earlier judgment of the Supreme Court in the case of Valliammal v. Subramaniam(2004) 7 SCC 233it was held that while considering whether a particular transaction is benami in nature, the following six circumstances can be taken as a guide:

“(1) The source from which the purchase money came;

(2) The nature and possession of the property, after the purchase;

(3) Motive, if any, for giving the transaction a benami colour;

(4) The position of the parties and the relationship, if any, between the claimant and the alleged benamidar;

(5) The custody of the title deeds after the sale; and

(6) The conduct of the parties concerned in dealing with the property after the sale.
(JaydayalPoddar v. BibiHazra(supra), SCC p. 7, para6)”

After considering the aforesaid principles of law, Hon’ble Court held that it appears that both, the Trial Court and the High Court have erred in shifting the burden on the Defendants to prove that the sale transactions were not benami transactions.

Further, considering the facts and aforesaid principles it was observed that the reasoning and the findings recorded by the Trial Court confirmed by the High Court while holding the Sale Deeds/transactions in favour of the Defendant no.1 (Appellant before the Supreme Court) as benami cannot be said to be germane and or fulfilling the circumstances as carved out by the Supreme Court in the aforesaid decisions.

It was also observed that the payment of part sale consideration cannot bethe sole criteria to hold the sale/transaction as benami. While considering a particular transaction as benami, the intention of the person who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase money, has to be decided on the basis of the surrounding circumstances; the relationship of the parties; the motives governing their action in bringing about the transaction and their subsequent conduct etc.

It was also observed that merely because of the stamp papers at the time of the execution of the Sale Deed,were purchased by Mr. Narayanasamy Mudaliar, by that itself it cannot be said that the Sale Deed in favour of defendant no.1 was benami transaction.

It was also observed that Defendant no.1 (Appellant here) all throughout treated the suit property as her self-acquired property

The most important point to be noted here is that the Hon’ble Supreme Court also took the notice of the original Benami Transaction (Prohibition) Act 1988as well as amendment made in the year 2016 and it was inter-alia held relying upon the earlier judgment passed by the Supreme Court in the case Binapani Paul v. PratimaGhosh(2007) 6 SCC 100that Benami Transaction (Prohibition) Act 1988 would not be applicable retrospectively.

Thus, in nutshell Hon’ble Supreme Court has held that the subject transactions could not be proved as Benami because the person alleging them to be benami could not bring cogent material and evidences on record to prove it so in terms of the six criteria’s and principles laid down by the Supreme Court to prove a transaction as Benami and thus the subject transactions/properties could not be treated as benami.

Analysis of the Authors:

The above said judgment should go a long way in giving requisite guidance in putting to rest many avoidable controversies which are arising because of un-thoughtful implementation of new Benami Law.

Thus, from the aforesaid judgment it again becomes clear that mere providing of part or full consideration as source of money which is utilised to purchase the subject property would not ipso facto make the property as benami in the hands of the purchaser. And, for this purpose other relevant factors as discussed above must also exist.

Further existence of the aforesaid other factors and fulfillment of the requisite conditions must be proved by the person who is alleging the transaction to be benami and that the same has to be proved/established with the help of cogent material/evidences, which are admissible in the eyes of law and the same cannot be done merely on the basis of suspicion or surmises and conjectures.

With regard to Burden of proof, as stipulated by the legislature, it is noted that perusal of provisions of Prohibition of Benami Property Transactions Act, 1988 (newly amended law) will show that there is no provision on the statute which shifts the burden of proof from the Initiating Officer upon the noticee i.e. the person to whom show cause notice is issued by the said officer for explaining as to why the transaction/property alleged to be benami in the notice issued u/s 24(1) of the said Act should not be treated as benami and why the said person should not be treated as benamidar (or beneficial owner) of the said transaction/property.

Thus, the principles laid down by the Hon’ble Supreme Court as discussed above would be squarely applicable to decide whether a transaction is benami or not even under the new amended law. Resultantly, the fundamental principles of law in this regard as contained in directly relevant provisions of the Indian Evidence Act, 1872 would have to be adhered to by the Initiating Officer for discharging his burden under the law for establishing the alleged transaction/property as benami.

For this purpose, immediate reference can be made to section 91 & 92, section 101 & 102, and section 106 of the Indian Evidence Act, 1872, which throw light on the aspects of nature of proof/evidences required under the law to discharge the burden under varied circumstances.

The other important finding which fell from the Supreme Court is on the issue of retrospectivity. The Supreme Court in this judgment, relying upon its earlier judgment in the case of Binapani Paul, supra, has clearly held that provisions of original legislation i.e. Benami Transaction (Prohibition) Act 1988cannot be applied retrospectively. Thus with regard to the newly amended law namely the Prohibition of Benami Property Transaction Act, 1988 support can be derived from the present judgment of the Hon’ble Supreme Court to contend that provisions of new law also would not be applicable retrospectively and thus would not be applicable on the transactions done prior to 1.11.2016, especially because no provision has been specifically brought in the law to apply it retrospectively. It would be of course in addition to various other arguments one would take to challenge retrospective application of law having criminal consequences.

It is felt that the aforesaid judgment would act as a good guide post for all i.e. the implementing agencies, courts as well as various citizens of the country who have to deal with this law in one way or the other.

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