Case Law Details
Kalyan Buildmart Pvt. Ltd. Vs Initiating Officer (Rajasthan High Court)
Conclusion: In present facts of the case the Hon’ble High Court have allowed the writ petition filed by the Company, wherein it was held that so far as the ownership of land is concerned, each company has right to purchase property and the Benami Act, 1988, would not extend to properties purchased by the company.
Facts: The petitioner Company was incorporated with two shareholders and Directors – Madan Mohan Gupta and Shashikala Gupta on 21.08.2006. The agricultural land was purchased by the company in its name by executing four identical registered sale deeds.
A reference was received from the Assistant Commissioner of Income Tax on 15.09.2017 with relation to information regarding Benami property transaction in the case of Rajendra Kumar Jain and others. The necessary enquiries were initiated under Section 23 of the Benami Act, 1988 with reference to the aforesaid land and the IO has stated that a search under Section 132 of the Income Tax Act, 1961 was carried out on Rajendra Jain/Rajendra Bardiya group on 23.05.2013. During the course of search at the residence of one Madan Mohan Gupta, the incriminating documents including a pocket diary were seized. In the aforesaid diary, details of transactions relating to land located near Entertainment Paradise, Jaipur were found to have been recorded. It revealed that huge payments were made by Rajendra Kumar Jain, Navrattan Kothari, Vimal Chand Surana and Kushal Chand Surana for purchase of said land in the name of M/s. Shri Kalyan Buildmart Pvt. Ltd. The statement of Madan Mohan Gupta was recorded under Section 131 of the Income Tax Act, 1961 and cross-examination was also done. Madan Mohan Gupta has deposed that there was some dispute between Navrattan Kothari and Vimal Chand Surana on one hand and the owner farmers of this land on the other hand. The farmers did not want to sell the land to Navrattan Kothari and Vimal Chand Surana and therefore, they approached Rajendra Kumar Jain to purchase the said land from the farmers. Since Madan Mohan Gupta was closely known to farmers as well as Rajendra Kumar Jain, Navrattan Kothari and Vimal Chand Surana and was therefore engaged to arrange and execute a deal on their behalf as their “Benamidar” and for this purpose, the company-M/s. Shri Kalyan Buildmart Pvt. Ltd. was incorporated.
The Initiating Officer (“IO”) has further alleged that the company was incorporated only for the said purpose and Madan Mohan Gupta and his wife, Shashikala Gupta were made dummy Directors of the company by Rajendra Kumar Jain. The current account was opened of the company and another account of Madan Mohan Gupta was also opened in Allahabad Bank. Similarly, the accounts were opened of the company by Madan Mohan Gupta by Vimal Chand Surana and Navrattan Kothari in the Bank of Rajasthan (now ICICI Bank). These accounts were not operated by Madan Mohan Gupta but were operated by Rajendra Kumar Jain and Navrattan Kothari and Vimal Chand Surana respectively for which the introducers were their employees and themselves.
The IO has submitted that Madan Mohan Gupta was acting as per instructions of Rajendra Kumar Jain, Navrattan Kothari and Vimal Chand Surana as their benamidar for execution of the deal. The property was purchased in the name of company solely with the purpose to transfer shares of the company to Vimal Chand Surana, Navrattan Kothari and Kushal Chand Surana in order to avoid liability of payment of stamp duty and therefore, the property was a benami property originally acquired in the name of benamidar company through dummy Directors – Madan Mohan Gupta and Shashikala Gupta by petitioner Nos.2 to 4 and therefore was liable for confiscation under the Benami Act, 1988.
The Hon’ble High Court took submissions of both sides into consideration and limited its adjudication to the facts of the present case and examine whether the transaction can be said to be benami transaction under the provisions of the Benami Act, 1988.
The first aspect is whether the company incorporated under the Companies Act and holding any property in its name can be said to be a benamidar on the basis that funds which were taken by the Directors and invested in the company by way of shareholders which have been utilised for purchasing of the property of the company can be treated as a benami transaction and shareholders to be the actual beneficial owners. The Hon’ble High Court relied upon Section 3(3) of the Companies Act, 1956, wherein it is stated that:
“Every private company, existing on the commencement of the Companies (Amendment) Act, 2000, with a paid-up capital of less than one lakh rupees, shall, within a period of two years from such commencement, enhance its paid-up capital to one lakh rupees.”
The Hon’ble High Court observed that the deposits are made to the company from its Directors or their relatives and if such deposits are allowed, they become part of capital of the company. The net worth of the company would mean the sum total of the paid-up capital and free reserves after deducting the provisions or expenses as may be prescribed. It is a juristic person. The Directors may buy properties in the name of company and the company alone shall be its owner.
However, so far as the ownership of land is concerned, each company has right to purchase property. The Benami Act, 1988, in the opinion of this Court, would not extend to properties purchased by the company.
Further, it was observed that a benami transaction would require one transaction made by one person in the name of another person where the funds are owned and paid by the first person to the seller while seller gets registered sale deed executed in favour of the second person i.e. from account of ‘A’, the amount is paid to ‘C’ who sells the property to ‘B’ and a registered sale deed is executed in favour of ‘B’.
While in the case of an individual, the aforesaid position may continue, however, in transaction for purchase of property by a company in favour of any person or in their own name would not come within the purview of benami transaction because the funds of the company are its own assets. If promoters of the company namely, the shareholders, their relatives or individuals who invest in the company by way of giving land or by way of gift or in any other manner, then such amounts/monies received, would be part of the net worth of the company and the company would be entitled to invest in any sector for which it has been formed. The persons who have put monies in the company, may be considered as their shareholders but such shareholders do not have right to own properties of the company nor it can be said that the shareholders have by virtue of their share in the company invested their amount as benamidars. The transactions of the company are independent transactions which are only for the purpose of benefit of the company alone.
It was also observed that the proceedings initiated after 10 years of the said purchase made in 2007 are highly belated. Ordinarily, any proceeding relating to benami transactions ought to be taken up immediately or atleast within reasonable period of limitation of three years as generally provided under the Limitation Act, 1963. It was noticed that statement of Madan Mohan Gupta has not been accepted by the Income Tax Authorities for initiating any proceeding of evasion as against Rajendra Kumar Jain. The affidavits given by Madan Mohan Gupta were also not found to be reliable and he has changed his version from time to time. The transactions done legally under the Companies Act of transferring shares of one shareholder to another, the benefit, if any, which may accrue on account of legally allowed transactions cannot be made as a ground to draw presumption of benami transaction under the Benami Act, 1988. The strict proof is required to be produced and there is no room for surmises or conjectures nor presumption can be made as the Benami Act has penal consequence.
Finally while allowing the Writ Petition, it was observed that once the land has been surrendered and the order has been passed by the JDA under Section 90B of the Rajasthan Land Revenue Act, 1956 and the land has been converted from agriculture to commercial and registered lease deed has been executed by the JDA in favour of the company, the transaction is not a benami transaction.
FULL TEXT OF THE JUDGMENT/ORDER of RAJASTHAN HIGH COURT
1. The petitioners by way of this writ petition assail the provisional attachment orders dated 12.01.2018 passed by the Initiating Officer under Section 24(4) of the Prohibition of Benami Property Transactions Act, 1988 and the confirmation orders dated 30.01.2019 passed by the Adjudicating Authority under Section 26(3) of the Prohibition of Benami Property Transactions Act, 1988 (hereinafter referred to as “the Benami Act, 1988”).
2. In order to appreciate the controversy, it would be apposite to first notice the facts of the case as has come on record in brief. 2.1 The petitioner No.1-company M/s. Shri Kalyan Buildmart Pvt. Ltd. was incorporated with two shareholders and Directors – Madan Mohan Gupta and Shashikala Gupta on 21.08.2006. The agricultural land comprising Khasra Nos.406/148, 141/1 and 142 situated at Village Chainpura, Tehsil Sanganer, District Jaipur ad-measuring 0.99 hectares was purchased by the company in its name by executing four identical registered sale deeds.
2.2 A reference was received from the Assistant Commissioner of Income Tax, Central Circle-1, Jaipur on 15.09.2017 with relation to information regarding Benami property transaction in the case of Rajendra Kumar Jain and others. The necessary enquiries were initiated under Section 23 of the Benami Act, 1988 with reference to the aforesaid land and the IO has stated that a search under Section 132 of the Income Tax Act, 1961 was carried out on Rajendra Jain/Rajendra Bardiya group on 23.05.2013. During the course of search at the residence of one Madan Mohan Gupta, the incriminating documents including a pocket diary were seized. In the aforesaid diary, details of transactions relating to land located near Entertainment Paradise, Jaipur were found to have been recorded. It revealed that huge payments were made by Rajendra Kumar Jain, Navrattan Kothari, Vimal Chand Surana and Kushal Chand Surana for purchase of said land in the name of M/s. Shri Kalyan Buildmart Pvt. Ltd. The statement of Madan Mohan Gupta was recorded under Section 131 of the Income Tax Act, 1961 and cross-examination was also done. Madan Mohan Gupta has deposed that there was some dispute between Navrattan Kothari and Vimal Chand Surana on one hand and the owner farmers of this land on the other hand. The farmers did not want to sell the land to Navrattan Kothari and Vimal Chand Surana and therefore, they approached Rajendra Kumar Jain to purchase the said land from the farmers. Since Madan Mohan Gupta was closely known to farmers as well as Rajendra Kumar Jain, Navrattan Kothari and Vimal Chand Surana and was therefore engaged to arrange and execute a deal on their behalf as their “Benamidar” and for this purpose, the company-M/s. Shri Kalyan Buildmart Pvt. Ltd. was incorporated.
2.3 The Initiating Officer (“IO”) has further alleged that the company was incorporated only for the said purpose and Madan Mohan Gupta and his wife, Shashikala Gupta were made dummy Directors of the company by Rajendra Kumar Jain. The current account was opened of the company and another account of Madan Mohan Gupta was also opened in Allahabad Bank. Similarly, the accounts were opened of the company by Madan Mohan Gupta by Vimal Chand Surana and Navrattan Kothari in the Bank of Rajasthan (now ICICI Bank). These accounts were not operated by Madan Mohan Gupta but were operated by Rajendra Kumar Jain and Navrattan Kothari and Vimal Chand Surana respectively for which the introducers were their employees and themselves.
2.4 The IO has submitted that Madan Mohan Gupta was acting as per instructions of Rajendra Kumar Jain, Navrattan Kothari and Vimal Chand Surana as their benamidar for execution of the deal. The property was purchased in the name of company solely with the purpose to transfer shares of the company to Vimal Chand Surana, Navrattan Kothari and Kushal Chand Surana in order to avoid liability of payment of stamp duty and therefore, the property was a benami property originally acquired in the name of benamidar company through dummy Directors – Madan Mohan Gupta and Shashikala Gupta by petitioner Nos.2 to 4 and therefore was liable for confiscation under the Benami Act, 1988.
2.5 It was further submitted that subsequently shares of the company were transferred by Madan Mohan Gupta and Shashikala Gupta to petitioner Nos.2 to 4 which reflected that the property by the company was benami and was actually bought by petitioner nos.2 to 4.
3. Learned counsel for the petitioners submitted that the company purchased the land in its name while the Directors of the company at that time were Madan Mohan Gupta and Shashikala Gupta, who obtained loan from one Rajendra Kumar Jain for the purpose of purchase of the agricultural land in 2006. The shares of the company were transferred to the petitioner Nos.2 to 4, who purchased their shares in 2008.
4. The proceedings under Section 90B of the Rajasthan Land Revenue Act, 1956 were undertaken and the Authorised Officer passed an order under Section 90B on 04.04.2007 whereby the land was vested with the JDA. The company further purchased an agricultural land comprising Khasra Nos.403/148 and 404/148 ad-measuring 0.58 hectares. For this land also, the recommendation for conversion of land from agricultural to commercial purposes was made on 05.11.2007 subject to petitioner surrendering 1953 sq. mtrs. of land to JDA for developing 80 ft. and 60 ft. wide road. The said conversion was sanctioned by the State Government on 17.11.2007 changing the nature of land from agriculture to commercial. The amount of Rs.1,37,09,371/- was demanded by the JDA as premium, one time lease and peripheral charges which were deposited by the company on 22.11.2007 and additional demand resulted in depositing a further sum of Rs.14,46,880/- on 10.12.2007. Thereupon, a lease deed was issued by the JDA for 13747 sq. metrs. vide order dated 18.12.2007. A sum of Rs.4 lac was deposited by the petitioner-company for approval of building plans which were approved by the Building Plan Committee of JDA on 18.06.2010 and the JDA released the approved building plans on 14.12.2011. A sum of Rs.75 crore was spent by the petitioner-company raising and constructing four towers of the project as per permitted height between 2011 and 2014. The construction was started as per building plan.
5. A notice was thereafter served under Section 24(1) of the Benami Act, 1988 to the petitioner No.1-company through its erstwhile Directors namely, Madan Mohan Gupta and Shashikala Gupta on 17.10.2017, whereafter provisional attachment orders were passed on 12.01.2018 by the Initiating Officer and the Adjudicating Authority confirmed the attachment proceedings on 30.01.2019. Challenging the said provisions, the present writ petition has been filed.
6. Learned counsel for the petitioner-company has submitted that the entire proceedings are illegal and unjustified.
7. It is stated that the Chairman of the Appellate Tribunal retired and the appeal preferred before the Appellate Tribunal against the order dated 30.01.2019 passed by the Adjudicating Authority became otiose. The petitioners were caused great prejudice and financial loss on account of the attachment and even as on today, the Appellate Tribunal is not functioning. In the circumstances, it was prayed that the writ petition would be maintainable. Learned counsel for the petitioners relied on judgment passed in the case of Rojer Mathew Vs. South Indian Bank Ltd. & Ors., reported in 2020 (6) SCC 1 to submit that the writ petition was maintainable.
8. This court had issued notices, whereafter learned counsel for the respondents have appeared and submitted that as per statement recorded of Madan Mohan Gupta under the Income Tax Act, it is apparent that the money used for purchasing property was of Navrattan Kothari and Vimal Chand Surana and the property was thus a benami property and the said persons were the beneficiaries. The respondents further submitted that the attachment has been done in order to protect the part of property being alienated and the department does not propose to confiscate or auction the property. Thereafter, the case was heard finally.
9. Learned counsel for the petitioners submits that the impugned orders holding the petitioner-company No.1 is ‘benamidar’ and the petitioner Nos.2 to 4 as ‘beneficial owners’, on the ground that they are shareholders of petitioner No.1-company, are wholly erroneous. It is submitted that the company has its own separate identification in law as a juristic person and the relation between the shareholders and the company cannot be said to be benamidar and beneficial owners as shareholders. It is stated that the company has throughout owned the property and mere change of shareholding would not make the property of the company as ‘benami’. Learned counsel submits that the entire premise of the case set up by the respondents is thus inherently improbable and absurd and such proceedings of attachment are a complete abuse of process and suffer from grave non-application of mind and therefore, deserve to be set aside.
10. Learned counsel took the court to the dates of events as noticed above. It was further submitted that the shareholders do not hold the property of the company and in support thereof, he relied on the judgments of the Supreme Court in the case of Chiranjit Lal Chowdhuri Vs. Union of India & Ors., reported in AIR 1951 SC 41 and in Bacha F. Guzdar, Bombay Vs. Commissioner of Income Tax, Bombay, reported in AIR 1955 SC 74.
11. Secondly, it is submitted that the property was purchased as an agricultural land by the company which has been resumed in terms of Section 90B of the Rajasthan Land Revenue Act, 1956 by the JDA. As per Section 90B of the Rajasthan Land Revenue Act, 1956 as it existed the khatedari rights of the petitioners were terminated on 04.04.2007. Adjoining land bearing Khasra Nos.403/148 and 404/148 had also been purchased by the petitioner-company ad-measuring 0.58 hectares and in respect of the said land also, proceedings under Section 90B were undertaken and rights of the khatedari of the petitioner-company were terminated vide order dated 28.05.2007.
12. It is submitted that merely because the original Directors of the company have sold their shares subsequently to the petitioners, the petitioners would not make transaction benami as the company remains actual beneficial owner of the property. After resumption of land by the State under 90B proceedings, the property itself ceased to exist and the attachment and the confirmation are unsustainable in law. The JDA has already converted the land as commercial and a registered lease deed has been executed by the JDA in favour of the company which admittedly has not been treated as a transaction under the Benami Act, 1988 by the authority while passing order under Section 24(4) of the Benami Act, 1988. A commercial complex therefore could not have been a subject matter of attachment and the entire proceedings are without jurisdiction and infringe rights under Articles 14, 21 and 300A of the Constitution of India.
13. Learned counsel further submitted that the Adjudicating Authority in its long order of 73 pages has concluded in 9 lines without giving any finding that the attached property is a benami property.
14. Learned counsel further submitted that there is an inordinate delay of 10 years for issuing show cause notice under Section 24(1) of the Benami Act, 1988 and the proceedings suffer from laches and delay and are outside the purview of reasonability.
15. Learned counsel relied on the judgments in the cases of Joint Collector Ranga Reddy District Vs. D. Narsing Rao reported in 2015 (3) SCC 695, Nedungadi Bank Ltd Vs. K.P. Madha Vankutty reported in 2000 (2) SCC 455, U.P.S.R.T.C. Vs. Ram Singh reported in 2008 (17) SCC 627, Santoshkumar Shivgonda Patil Vs. Balasaheb Tukaram Shevale reported in 2009 (9) SCC 352, Mohamad Kavi Mohamad Amin Vs. Fatmabai Ibrahim reported in 1997 (6) SCC 71 and in State of Gujarat Vs. Patil Raghav Natha reported in 1969 (2) SCC 187.
16. Learned counsel submitted that the orders have been passed without giving any opportunity of hearing to the petitioner- company. It is stated that the respondents issued provisional attachment orders on 23.10.2017 to which preliminary objections were raised by the petitioner No.1-company and the documents were sought for by the petitioner-company vide their letters dated 02.11.2017 and on 10.01.2018 objections were rejected by the respondent/s, the documents were supplied and the petitioner No.1-company was asked to submit its reply by 12.01.2018. The petitioner-company submitted its reply on 12.01.2018 and on the same day, an order was passed with a pre-decided mindset without giving opportunity to submit oral arguments in the case. Learned counsel submitted that the statement of one of the erstwhile Directors namely, Madan Mohan Gupta was relied upon although his statement was wholly unreliable. It is stated that Madan Mohan Gupta filed five different affidavits wherein three of his statements support the petitioners and two of the statements support the respondents. No statement was recorded under Section 19(1)(b) of the Benami Act, 1988 and the affidavit filed under Section 131 of the Income Tax Act, 1961 was taken into consideration.
17. Learned counsel submitted that contentions of the petitioner company were upheld by the Income Tax Appellate Tribunal and nothing adverse was ultimately found against the petitioner-company and the statement of Madan Mohan Gupta was not accepted but the respondents in the present proceedings have proceeded to hold the property as benami on the basis of self-statement of Madan Mohan Gupta.
18. Learned counsel also submitted that in the case of Niharika Jain Vs. Union of India, reported in 2019 (3) RLW 1947, this Court has held that the proceedings under the Benami Act, 1988 cannot be treated as retrospective as it has been brought into force with effect from 01.11.2016. The Division Bench stayed the operation of order passed by the learned Single Judge on 26.08.2020. However, the Supreme Court stayed the part of the order and at the same time restrained the concerned owners from not alienating the property and not creating third party interest.
19. Learned counsel relied on the judgment passed by the Bombay High Court in the case of Joseph Isharat Vs. Rozy Nishikant Gaikwad, 2017 SCC Online Bom 10006 to submit that the provisions are prospective in nature and further submits that an SLP against the said judgment was dismissed by the Supreme Court vide order dated 28.04.2017.
20. Learned counsel also relied on the judgment in the case of Mangathai Ammal Vs. Rajeshwari & Ors. reported in 2019 SCC Online SC 717 to submit that that Supreme Court has also observed that the amended provisions would not have a retrospective effect.
21. Learned counsel appearing for the respondent/s also submitted written statements and stated that two plots of land were adjacent to each other, one of them was owned by a company called ‘Paradise Complex Ltd.” in which the petitioner Nos.2, 3 and 4 were shareholders. Another plot was owned by native farmers which the petitioners wanted to buy so that these plots of land can be combined into a large land and combined patta can be obtained from JDA. So, the petitioners took help of one Rajendra Jain to execute the entire transaction through company – M/s. Kalyan Buildmart Pvt. Ltd. through its dummy Directors namely, Madan Mohan Gupta and Shashikala Gupta as have been mentioned and noticed above.
22. Learned counsel further submitted that ‘benami transaction’ would include such a transaction and the property can be treated as benami property while the company would be termed as ‘benamidar’ and the petitioner nos.2 to 4 are beneficial owners. It is submitted that consideration was made by Rajendra Jain for the benefit and on behalf of Vimal Chand Surana and Navrattan Kothari and Kushal Chand Surana while the property was acquired in the name of M/s. Kalyan Buildmart Pvt. Ltd. The shares of the company after transaction have been transferred to petitioners making them ultimate beneficial owners.
23. Learned counsel relied on Section 6 of the Benami Act, 1988 to submit that such re-transfer of property by benamidar was prohibited. He further relied on the statement made by Madan Mohan Gupta in income tax proceedings. In support of his submissions, learned counsel relied on the following interim orders:
“1. Interim Order dated 03.02.2020 passed by the Hon’ble Apex Court in Special Leave to Appeal in the case of Union of India V/s Ganpati Dealcom Pvt. Ltd., bearing No(s).2784/2020.
2. Interim Order dated 15.10.2019 passed by the Hon’ble Rajasthan High Court in D.B. Special Appeal (Writ) No.1227/2019 and connected matters in the case of Dy. Commissioner (Benami Prohibition), Rajasthan And Initiating Officer V/s Smt. Pallavi Mishra.
3. Interim Order dated 26.08.2020 passed by the Hon’ble Rajasthan High Court in D.B. Special Appeal (Writ) No.1227/2019 and connected matters in the case of Dy. Commissioner (Benami Prohibition), Rajasthan And Initiating Officer V/s Smt. Pallavi Mishra.
4. Interim Order passed by the Hon’ble Apex Court in Special Leave to Appeal in the case of Pallavi Mishra V/s Dy. Commissioner (Benami Prohibition) Rajasthan And Initiating Officer & Anr., bearing No(s).10545/2020.
5. Valliammal Vs Subramaniam, 2004 7 SCC 233.
7. Simmant Kohli Vs. Union of India and Ors., W.P. No.3957/2019.”
24. I have considered the submissions. It would be apposite to quote relevant definitions as provided under the Benami Act, 1988.
25. The definition of ‘benami transaction’ provided under Section 2(9) of the Benami Act, 1988 reads as under:
“2(9) “benami transaction” means,—
(A) a transaction or an arrangement—
(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and
(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by—
(i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;
(ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose;
(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or
(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or
(C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;
(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;
Explanation.—For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), if, under any law for the time being in force,—
(i) consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;
(ii) stamp duty on such transaction or arrangement has been paid; and
(iii) the contract has been registered.”
26. The definition of ‘benamidar’ as provided under Section 2 (10) of the Benami Act, 1988 reads as under:
“2(10) “benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name.”
27. The definition of ‘person’ provided under Section 2(24) of the Benami Act, 1988 reads as under:
“2(24) “person” shall include—
(i) an individual;
(ii) a Hindu undivided family;
(iii) a company;
(iv) a firm;
(v) an association of persons or a body of individuals, whether incorporated or not;
(vi) every artificial juridical person, not falling under sub-clauses (i) to (v).”
28. Section 3 of the Benami Act, 1988 reads as under:
“3. Prohibition of benami transactions.—(1) No person shall enter into any benami transaction.
(2) 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.
(3) Whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016 (43 of 2016) shall, notwithstanding anything contained in sub-section (2), be punishable in accordance with the provisions contained in Chapter VII.”
29. Section 24 of the Benami Act, 1988 reads as under:
“24. Notice and attachment of property involved in benami transaction
(1) Where the Initiating Officer, on the basis of material in his possession, has reason to believe that any person is a benamidar in respect of a property, he may, after recording reasons in writing, issue a notice to the person to show cause within such time as may be specified in the notice why the property should not be treated as benami property.
(2) Where a notice under sub-section (1) specifies any property as being held by a benamidar referred to in that sub-section, a copy of the notice shall also be issued to the beneficial owner if his identity is known.
(3) Where the Initiating Officer is of the opinion that the person in possession of the property held benami may alienate the property during the period specified in the notice, he may, with the previous approval of the Approving Authority, by order in writing, attach provisionally the property in the manner as may be prescribed, for a period not exceeding ninety days from the date of issue of notice under sub-section (1).
(4) The Initiating Officer, after making such inquires and calling for such reports or evidence as he deems fit and taking into account all relevant materials, shall, within a period of ninety days from the date of issue of notice under sub-section (1),—
(a) where the provisional attachment has been made under subsection (3),—
(i) pass an order continuing the provisional attachment of the property with the prior approval of the Approving Authority, till the passing of the order by the Adjudicating Authority under sub-section (3) of section 26; or
(ii) revoke the provisional attachment of the property with the prior approval of the Approving Authority;
(b) where provisional attachment has not been made under subsection (3),—
(i) pass an order provisionally attaching the property with the prior approval of the Approving Authority, till the passing of the order by the Adjudicating Authority under sub-section (3) of section 26; or
(ii) decide not to attach the property as specified in the notice, with the prior approval of the Approving Authority.
(5) Where the Initiating Officer passes an order continuing the provisional attachment of the property under sub-clause (i) of clause (a) of sub-section (4) or passes an order provisionally attaching the property under sub-clause (i) of clause (b) of that sub-section, he shall, within fifteen days from the date of the attachment, draw up a statement of the case and refer it to the Adjudicating Authority.
Explanation: For the purposes of this section, in computing the period of limitation, the period during which the proceeding is stayed by an order or injunction of any court shall be excluded:
PROVIDED that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in sub-section
(4) available to the Initiating Officer for passing order of attachment is less than thirty days, such remaining period shall be deemed to be extended to thirty days:
PROVIDED FURTHER that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in subsection (5) available to the Initiating Officer to refer the order of attachment to Adjudicating Authority is less than seven days, such remaining period shall be deemed to be extended to seven days.”
30. From the judgments, which have been cited by both the parties and the interim orders passed by the Supreme Court, in the opinion of this court, the question regarding retrospectivity of the amendments made in the Benami Act, 1988 and brought into force w.e.f. 01.11.2016 is left open to be adjudicated only by the Supreme Court. Suffice it to notice that in some of the judgments i.e. Mangathai Ammal (supra) and Joseph Isharat (supra), the Supreme Court has observed benami transactions not to be applicable retrospectively. However, as SLP No.2784/2020, Union of India & Anr. Vs. M/s. Ganpati Dealcom Pvt. Ltd. is pending wherein the order of High Court has been stayed, this Court would refrain from making any observation with regard to applicability of the Act retrospectively or prospectively.
31. This Court would therefore only limit its adjudication to the facts of the present case and examine whether the transaction can be said to be benami transaction under the provisions of the Benami Act, 1988.
32. The first aspect is whether the company incorporated under the Companies Act and holding any property in its name can be said to be a benamidar on the basis that funds which were taken by the Directors and invested in the company by way of shareholders which have been utilised for purchasing of the property of the company can be treated as a benami transaction and shareholders to be the actual beneficial owners.
33. Section 3(3) of the Companies Act, 1956 defines “private company” as under:
“Every private company, existing on the commencement of the Companies (Amendment) Act, 2000, with a paid-up capital of less than one lakh rupees, shall, within a period of two years from such commencement, enhance its paid-up capital to one lakh rupees.”
34. A company has its own articles of association. The deposits are made to the company from its Directors or their relatives and if such deposits are allowed, they become part of capital of the company. The net worth of the company would mean the sum total of the paid-up capital and free reserves after deducting the provisions or expenses as may be prescribed. It is a juristic person. The Directors may buy properties in the name of company and the company alone shall be its owner.
35. In the aforesaid backdrop, therefore, this Court finds that in the present case, all the properties in question being in the name of petitioner No.1-company and all applications which have been moved to the JDA authorities for surrendering land under Section 90B of the Rajasthan Land Revenue Act and for setting up a commercial building, have been made in the name of the company. The contention of the respondents with regard to intentions of petitioner Nos.2, 3 and 4 to own the plot of land adjacent to the plot owned by another company called “Paradise Complex Ltd.” and therefore, the petitioner No.1-company was set up, is clearly a misreading of the provisions of the Companies Act. Merely because the petitioner nos.2, 3 and 4 can be said to be shareholders of the company, the Paradise Complex Ltd. would not make them owners of land of the company. It may be a different aspect altogether in relation to the evasion of income tax and for carrying out proceedings under the Income Tax Act. However, so far as the ownership of land is concerned, each company has right to purchase property. The Benami Act, 1988, in the opinion of this Court, would not extend to properties purchased by the company.
36. The very purpose of coming into force of the Benami Transactions (Prohibition) Act, 1988 was to implement the recommendations of Fifty-seventh Report of the Law Commission on benami transactions and was to curtail benami purchases i.e. purchase in false name of another person, who does not pay the consideration but merely lends his name while the real title vests in another person who actually purchased the property and he is the beneficial owner essentially as mentioned in the introduction. It used to evade law of perpetuity because of parda system, to avoid annoyance, Zamindar’s desire to avoid indignity and legal disability, mysterious desire etc. Such benami transactions abused and defrauded public revenues and creditors.
37. The Parliament for the first time intervened in 1976 when it introduced section 281A in the Income Tax Act, 1961 barring the institution of suit in relation to benami transactions. But this too did not stop benami transactions and made it an offence also, prohibiting all suits, claims and actions based upon benami transaction. The Parliament also in order to stop the abuse and fraud by the benami transaction property without compensation repealed section 82 of Indian Trusts Act and section 281A of the Income Tax Act alongwith other consequential repeal. The Law Commission was requested to examine the subject on benami transactions in all its ramifications. The Law Commission submitted its Fifty-seventh Report. To implement the recommendations of Fifty-seventh Report of the Law Commission President promulgated the Benami Transactions (Prohibition of the Right to Recovery Property) Ordinance, 1988 on 19th May, 1988. In order to replace the said Ordinance by an Act of Parliament, the Benami Transactions (Prohibition) Bill was introduced in the Parliament.
38. Upon reading provisions of the Benami Act, 1988 and the definitions as above, it is thus apparent that a benami transaction would require one transaction made by one person in the name of another person where the funds are owned and paid by the first person to the seller while seller gets registered sale deed executed in favour of the second person i.e. from account of ‘A’, the amount is paid to ‘C’ who sells the property to ‘B’ and a registered sale deed is executed in favour of ‘B’.
39. While in the case of an individual, the aforesaid position may continue, however, in transaction for purchase of property by a company in favour of any person or in their own name would not come within the purview of benami transaction because the funds of the company are its own assets. If promoters of the company namely, the shareholders, their relatives or individuals who invest in the company by way of giving land or by way of gift or in any other manner, then such amounts/monies received, would be part of the net worth of the company and the company would be entitled to invest in any sector for which it has been formed. The persons who have put monies in the company, may be considered as their shareholders but such shareholders do not have right to own properties of the company nor it can be said that the shareholders have by virtue of their share in the company invested their amount as benamidars. The transactions of the company are independent transactions which are only for the purpose of benefit of the company alone.
40. It is a different aspect altogether that on account of benefit accruing to the company, the shareholders would also receive benefit and they may be beneficiaries to a certain extent. This would however not make shareholders as beneficial owners in terms of the definition as provided under Section 2(12) of the Benami Act, 1988. ‘Company’ as defined under the Companies Act, 1956 and incorporated thereunder, therefore, cannot be treated as benamidar as defined under the Benami Act, 1988. The company cannot be said to be a benamidar and its shareholders cannot be said to be beneficial owners within the meaning of the Benami Act, 1988.
41. The entire fulcrum of this case, therefore, rests on misinterpretation of the provisions of the Benami Act, 1988. All the transactions in the corporate world made by the company would become benami transaction if the interpretation of definition as understood by the respondents is accepted by this Court. In view of the aforesaid, the entire proceedings initiated under the Benami Act, 1988 deserve to be quashed and set aside.
42. This Court also finds that that the proceedings initiated after 10 years of the said purchase made in 2007 are highly belated. Ordinarily, any proceeding relating to benami transactions ought to be taken up immediately or atleast within reasonable period of limitation of three years as generally provided under the Limitation Act, 1963.
43. The proceedings initiated under the Benami Act, 1988 are found to be based on income tax proceedings initiated and the statement recorded of one Madan Mohan Gupta. As per record, it is noticed that statement of Madan Mohan Gupta has not been accepted by the Income Tax Authorities for initiating any proceeding of evasion as against Rajendra Kumar Jain. The affidavits given by Madan Mohan Gupta are also not found to be reliable and he has changed his version from time to time. Transferring of shares by Madan Mohan Gupta to the petitioner nos.2, 3 and 4 could not be a ground to draw inference of benami transaction. It is opinion of the Court, the transactions done legally under the Companies Act of transferring shares of one shareholder to another, the benefit, if any, which may accrue on account of legally allowed transactions cannot be made as a ground to draw presumption of benami transaction under the Benami Act, 1988. The strict proof is required to be produced and there is no room for surmises or conjectures nor presumption can be made as the Benami Act has penal consequence.
44. The submission of learned counsel for the respondents of power of lifting veil to examine the original sale deed dated 24.08.2006 in relation to Benami Act, 1988 although is correct but as this Court has already noticed that the original transaction of 2006 was between the company and the sellers and the sale deed was executed in favour of the company, therefore, this Court is satisfied that a subsequent registered sale deed executed by the JDA does not warrant interference and it is not a case of proceeds from the property acquired through benami transaction on 24.08.2006. The approach of the respondents is thus found to be erroneous.
45. This Court also finds strength in the arguments made by learned counsel for the petitioners regarding provisions of Section 90B of the Rajasthan Land Revenue Act. Once the land has been surrendered and the order has been passed by the JDA under Section 90B of the Rajasthan Land Revenue Act, 1956 and the land has been converted from agriculture to commercial and registered lease deed has been executed by the JDA in favour of the company, the transaction is not a benami transaction.
46. In view of the above discussion, this Court concludes that action of the respondents in attaching commercial complex which has been leased out to the company by the JDA is illegal and unjustified and without jurisdiction.
47. Accordingly, the provisional attachment orders dated 12.01.2018 passed by the Initiating Officer under Section 24(4) of the Benami Act, 1988 and the orders passed by the Adjudicating Authority dated 30.01.2019 confirming the orders under Section 26(3) of the Benami Act, 1988 are set aside with all consequential benefits. The property shall be handed over to the company.
48. Accordingly, the writ petition is allowed in the aforesaid terms. No costs.
49. All pending applications, if any, shall also stand disposed of.
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