- Chhotelal And Others Vs Moolchand Lodhi And Others (Madhya Pradesh High Court)
- Background and Procedural History
- Parties' Submissions
- Appellant's Submissions
- Respondent's Submissions
- Nature of Relief Claimed in the Suit
- Benami Transaction under Section 2(9)
- Joint Family Property and Statutory Exclusions
- Section 4 of the Benami Act and Rejection of Plaint
- Order 7 Rule 11 CPC: Scope of Examination
- High Court's Finding on Benami Transaction
- Final Decision
Chhotelal And Others Vs Moolchand Lodhi And Others (Madhya Pradesh High Court)
The Madhya Pradesh High Court allowed the appeal against the order dated 30.06.2014 by which the trial court had allowed the application of respondent/defendant no. 2 under Order 7 Rule 11 CPC and rejected the suit as barred by Section 4 of the Prohibition of Benami Property Transactions Act, 1988.
The suit concerned property purchased in 1976 in the name of defendant no. 1, who was the plaintiff’s eldest son. The plaintiff asserted that the property had been purchased from the nucleus of joint family income and therefore constituted joint family property. Defendant no. 1 subsequently sold the property to defendant no. 2 in 2009, following which the plaintiff sought declarations concerning the joint family character of the property and the sale deed.
The appellant contended that the plaint did not assert a Benami transaction and that the property was claimed as joint family property. The respondent, on the other hand, contended that the transaction fell within the prohibition contained in Section 4 of the Act of 1988.
The High Court examined the definition of “benami transaction” under Section 2(9) and observed that the plaint assertions and documents did not disclose the 1976 transaction to be a Benami transaction. The Court noted the exclusions contained in Section 2(9), including those relating to joint family property and specified property held in the name of a spouse or child from known sources.
The Court further held that, at the stage of an application under Order 7 Rule 11 CPC, only the plaint assertions and documents attached to the plaint are to be considered. Since those materials did not disclose a Benami transaction on their face, the plaint could not have been rejected at that stage.
The impugned order dated 30.06.2014 was therefore set aside, the application under Order 7 Rule 11 CPC was rejected, and defendant no. 2 was left at liberty to raise all legal and factual objections, including the objection concerning a Benami transaction, in the written statement and press the same at trial.
Background and Procedural History
The present appeal under Section 96 of the Civil Procedure Code was filed challenging the order dated 30.06.2014, whereby the application of respondent/defendant no. 2 under Order 7 Rule 11 CPC had been allowed and the suit rejected as barred by law in view of Section 4 of the Prohibition of Benami Property Transactions Act, 1988.
The plaint assertions were that the property had been purchased in the year 1976 by the plaintiff, who was the father of defendant no. 1, in the name of defendant no. 1. According to the plaintiff, the property was purchased from the nucleus of joint family income and was therefore understood to be joint family property.
Defendant no. 1 subsequently sold the property to defendant no. 2 in 2009. The sale was stated to constitute the cause of action for filing the suit.
Parties’ Submissions
Appellant’s Submissions
Learned counsel for the appellant argued that the suit had been filed by the father of defendant no. 1 against defendant no. 1 and the purchaser from defendant no. 1. The assertion was that the property had been purchased in the name of defendant no. 1 from the nucleus of joint family income.
It was therefore contended that the actual title in the property lay with the joint family of the plaintiff and his sons and not with defendant no. 1 alone. The appellant submitted that the plaint sought a declaration that the property was joint family property and did not assert that the property was Benami.
The appellant further contended that it was for the plaintiffs to prove that the property had been purchased from the income of the joint family nucleus and that, without setting the case for evidence, the plaint could not have been rejected.
Respondent’s Submissions
Counsel for respondent no. 2/defendant no. 2 argued that the suit was collusive. It was contended that defendant no. 1 had purchased the property and sold it to defendant no. 2 in 2009, after which the father of defendant no. 1 instituted the suit seeking a declaration that the property was joint family property.
It was further argued that, looking to the plaint assertions, the transaction fell within the prohibited transactions contemplated by Section 4 of the Prohibition of Benami Property Transactions Act, 1988.
Nature of Relief Claimed in the Suit
The plaintiff sought a declaration that the property in question was joint family property and that it had been purchased by the plaintiff in the name of his eldest son, defendant no. 1.
The plaintiff also sought a declaration that the sale deed executed by defendant no. 1 in favour of defendant no. 2 was null and void. Permanent injunction was also sought.
Benami Transaction under Section 2(9)
The High Court considered whether the plaint assertions themselves disclosed the transaction to be a Benami transaction and therefore attracted the bar under Section 4.
The Court examined Section 2(9) of the Act of 1988, which defines “benami transaction”. The statutory definition contains specified exclusions, including transactions involving a Karta or member of a Hindu undivided family where consideration is provided from known sources of the Hindu undivided family and specified transactions involving property held in the name of a spouse or child where the consideration is provided from the known sources of the individual.
For background on the statutory concept of a Benami transaction, see Benami Transaction (Prohibition) Act, 1988.
Joint Family Property and Statutory Exclusions
The High Court observed that, as per Section 2(9)(i), joint family properties are excluded from the definition of Benami transaction. It also referred to Section 2(9)(iii), concerning property purchased in the name of the spouse or child of an individual from the known sources of the individual.
The statutory definition and its specified exceptions are also discussed in TaxGuru’s Comprehensive Analysis of Definition of Benami Transaction.
Section 4 of the Benami Act and Rejection of Plaint
Section 4 prohibits the right to recover property held Benami and bars a suit by a person claiming to be the real owner of such property against the person in whose name the property is held.
The issue before the High Court was whether the plaint assertions, by themselves, disclosed that the 1976 transaction was a Benami transaction so as to attract the statutory bar at the stage of consideration of an application under Order 7 Rule 11 CPC.
The High Court held that the plaint assertions did not disclose the transaction of sale of 1976 to be a Benami transaction. The Court nevertheless observed that defendant no. 2 could take such a defence in the written statement and that it would be for defendant no. 2 to prove the facts supporting such an objection if it was taken.
The statutory prohibition concerning recovery of property held Benami is also reproduced in TaxGuru’s Benami Transactions (Prohibition) Act, 1988.
Order 7 Rule 11 CPC: Scope of Examination
The High Court reiterated that, at the stage of an application under Order 7 Rule 11 CPC, only the plaint assertions and the documents attached to the plaint are to be seen.
In the present case, those pleadings and documents did not disclose the transaction to be a Benami transaction on their face. The Court therefore held that the trial court could not reject the plaint on the basis of the Benami objection at that stage.
The principle concerning examination of the plaint at the Order 7 Rule 11 stage is also reflected in TaxGuru’s recent publication Order VII Rule 11 CPC.
High Court’s Finding on Benami Transaction
The High Court considered the plaint assertions that the property had been purchased in 1976 by the plaintiff in the name of defendant no. 1 from the nucleus of joint family income.
On examining the definition of Benami transaction, the Court concluded that the plaint assertions did not disclose the transaction to be a Benami transaction. The Court therefore did not uphold the rejection of the plaint under Section 4 of the Act of 1988.
The Court clarified that this did not prevent defendant no. 2 from raising the objection of Benami transaction in the written statement. Such an objection could be pressed at the time of trial, where the factual assertions could be proved.
Final Decision
The High Court held that it was unable to uphold the impugned order passed by the trial court rejecting the plaint.
The impugned order dated 30.06.2014 was set aside and the application under Order 7 Rule 11 CPC filed by defendant no. 2 was rejected.
Defendant no. 2 was set at liberty to take all legal and factual objections, including the objection of Benami transaction, in the written statement and press the same at the time of trial of the suit.
The appeal was accordingly allowed and disposed of.
FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT
The present appeal under Section 96 of Civil Procedure Code has been filed challenging the order dated 30.06.2014, whereby the application of the respondent/ defendant no. 2 under Order 7 Rule 11 CPC has been allowed and the suit has been rejected as being barred by law in view of Section 4 of the Prohibition of Benami Property Transactions Act 1988, (for short “Act of 1988”).
2. Learned counsel for the appellant has vehemently argued that the suit was filed by the father of defendant no. 1, against the defendant no. 1 and the purchaser from defendant no. 1, on the assertion that the property was purchased in the name of defendant no. 1 by the nucleus of joint family income. Therefore the actual title in the property lay with the joint family of the plaintiff and all his sons, and not with the defendant no. 1 alone who was only one of the sons of the plaintiff. It is argued that the suit was filed on the assertions that the property was purchased by the nucleus of joint family income and therefore the property should be deemed to be joint family property and declaration to that effect was sought in the plaint. However, the trial court has considered the said assertions to be the assertions of the property being purchased Benami in the name of defendant no. 1 and the suit has been held to be barred by Section 4 of the Act of 1988 without adverting to the position that the assertion was of purchasing property in the name of son by the father and that too, from the nucleus of joint family income and declaration was sought that the property be declared to be joint family property which in no terms from the plaint assertions, brings the property within the purview of Benami property and the same is not within the purview of Benami transaction.
3. It is argued that it is for the plaintiffs to prove their assertions that whether the property was purchased from the income of nucleus of joint family and if the plaintiffs succeed in proving this assertion then the suit would not be barred even otherwise property purchased by the father in the name of son is not hit by Act of 1988 being Benami transaction and it is for the plaintiff to prove the position that the property was indeed purchased by the father in the name of son. Therefore, without setting the case for evidence the plaint could not have been rejected.
4. Per contra, the counsel for the respondent no.2/defendant no. 2 has vehemently argued that the suit in question is a collusive suit in as much as the property was purchased by defendant no. 1 and he sold the property to the defendant no. 2 in the year 2009 and immediately after selling the property to defendant no. 2, a collusive suit was filed by the father of defendant no. 1 seeking declaration on the said property to be joint family property which is only a malicious piece of litigation instituted by the plaintiff to harass and blackmail the defendant no. 2. It is further argued that looking to the plaint assertions, the transaction in question duly falls within the prohibited transactions in terms of Section 4 of Act of 1988.
5. This court has heard learned counsel for the rival parties at length and perused the record.
6. The plaint assertions are that the property was purchased in the year 1976 by the plaintiff who is father of defendant no.1, in the name of defendant no. 1 and therefore the property was understood to be joint family property as it was purchased from the nucleus of joint family income. However the defendant no. 1 sold the property to defendant no. 2 in the year 2009 and that was stated to be cause of action for filing the suit.
7. The declaration has been sought that the property in question be declared to be joint family property and it be declared that it was purchased by the plaintiff in the name of his eldest son i.e. defendant no. 1 and it may also be declared that the sale deed was executed by the defendant no. 1 in favour of defendant no. 2 is null and void. Permanent injunction was also sought by the plaintiff.
8. The question that whether the plaint assertions in itself disclose the transaction to be Benami transaction and hit by Act of 1988, is to be considered. Though Section 4 prohibits the right to recover property held Benami and suit by the person claiming to be real owner of such property is barred against the person in whose name the property is held. However, it is to be seen that whether the property looking to the plaint assertions, becomes subject matter of Benami transaction or not. Section 2(9) of Act of 1988 defines Benami transaction which is in the following terms.
“[2. Definitions. In this Act, unless the context otherwise requires,-
xx xx xx
(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;
(iv) 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;
(v) 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.”
9. As per Section 2(9)(i), the joint family properties are excluded from the definition of Benami transaction and as per Section 2 (9)(iii), the property purchased in the name of spouse or child of such of individual is not covered in the definition of Benami transaction.
10.Therefore, if the definition of Benami transaction is seen, then the plaint assertions do not disclose the transaction of sale of year 1976 to be Benami transaction, though the defendant no. 2 can take such defence in the written statement and it would be for the defendant No. 2 to prove the fact in support of his assertions if he takes such an objection. However, the plaint pleadings and documents attached to this plaint do not disclose the transaction in question to be Benami transaction.
11. It is settled in law that at the stage of application under Order 7 Rule 11 CPC, only the plaint assertions and the documents attached to the plaint are to be seen, that do not disclose the transaction to be Benami transaction on the face of such pleadings.
12. Therefore, this court is unable to uphold the impugned order passed by the trial court in rejecting the plaint.
13. In the result, the impugned order passed by the trial court dated 30.06.2014 is set aside. The application under Order 7 Rule 11 CPC filed by the defendant no. 2 stands rejected.
14. The defendant no. 2 is set at liberty to take all such legal and factual objections, including the objection of Benami transaction in his written statement and press the same at the time of trial of the suit.
15. In the above terms the appeal is allowed and disposed of.</strong
