2004 (9) TMI 383 - SC - Benami Property

Supreme Court rules in favor of appellant, affirming valid ownership rights over CANCIGO units.

The Supreme Court set aside the Special Court's judgment, ruling in favor of the appellant. It held that the appellant had a valid right to the CANCIGO ... Appointment and functions of custodian - Transfers - Held that:- Appeal allowed. We are concerned with a right of a party to possess the property over which it has a lawful title. In such a situation, Benami Transactions Act will have no application in allocation of shares as the same would not come within the purview of transaction relating to a transfer of property. Transfer of CANCIGO in favour of the Appellant was, thus, valid and legal as by reason of the transfer of possession of the CANCIGOs by respondent No. 2 in favour of the Appellant, a valid right has been created therein, the same could not have been attached in terms of section 3(3) of the said Act. The Custodian thought it expedient not to invoke the provisions of sub-section (2) of section 4 of the said Act. He was at liberty to do so. Even now he is free to do so, if so advised. Issues Involved:1. Transferability of CANCIGO units.2. Ownership and beneficial interest in CANCIGO units.3. Applicability of the Benami Transactions Act.4. Role and authority of the Custodian under the Special Courts Act.5. Legality and validity of the transactions involving CANCIGO units.6. Attachment of properties under the Special Courts Act.Issue-wise Detailed Analysis:1. Transferability of CANCIGO units:The CANCIGO Scheme imposed restrictions on the transfer of units. Condition No. 19 stated that no CANCIGO shall be transferable, nor shall any holder create any interest therein. The Brochure also stated that transfer of CANCIGO holdings from one person to another was not permitted, except in deserving cases where trustees might permit such a transfer. The court noted that permission is not a legal restriction and that the established business practice and the Sale of Goods Act or Transfer of Property Act did not create a legal bar on the transfer of CANCIGOs. The court concluded that the scheme could not create an absolute legal bar on the transfer of CANCIGOs so as to invalidate the same.2. Ownership and beneficial interest in CANCIGO units:The court analyzed the provisions of the Indian Trusts Act, particularly sections 58, 82, and 88. It held that a beneficial interest in the trust is created in different situations, and such interest is transferable. The court found that respondent Nos. 3 and 4 acted on behalf of respondent No. 2, creating a resulting trust in favor of respondent No. 2. The beneficial interest of respondent No. 2 was transferable, and the transfer to the appellant was valid. The court also noted that the Benami Transactions Act did not apply to such transactions.3. Applicability of the Benami Transactions Act:The court held that the Benami Transactions Act did not apply to the transaction in question. The Act applies when there is a transaction in which property is transferred to one person for consideration paid by another person. In this case, the court found that the transaction was not benami in nature as respondent Nos. 3 and 4 applied for allotment of CANCIGOs on behalf of respondent No. 2. The court also noted that the Benami Transactions Act is not a piece of declaratory or curative legislation and must be strictly construed.4. Role and authority of the Custodian under the Special Courts Act:The Custodian's role under the Special Courts Act includes notifying a person involved in securities transactions, canceling fraudulent contracts, and dealing with properties as directed by the Special Court. The court held that the Custodian's right is the same as that of the notified person, and the Custodian can only deal with properties that belonged to the notified person on the relevant date. The court concluded that the Custodian could not claim the CANCIGOs as they were transferred to the appellant before the notification of respondent No. 2.5. Legality and validity of the transactions involving CANCIGO units:The court examined whether the transactions involving CANCIGO units were illegal or invalid. It found that the Canbank Mutual Fund issued the CANCIGOs with full knowledge that they would benefit respondent No. 2. The court held that the transactions were not illegal, as they did not contravene any statutory provisions. The court also noted that the transfer of CANCIGOs to the appellant was valid and legal as it involved the delivery of possession and payment of consideration.6. Attachment of properties under the Special Courts Act:The court held that the attachment of properties under section 3(3) of the Special Courts Act is subject to any encumbrance. The court found that the appellant had a just right to possess the CANCIGOs to the exclusion of respondent No. 2, and the Special Court could not direct the appellant to hand them over to the Custodian. The court concluded that the Custodian could only attach properties that belonged to the notified person, and in this case, respondent No. 2 had no interest in the CANCIGOs at the time of attachment.Conclusion:The Supreme Court set aside the impugned judgment of the Special Court, allowing the appeals. The court held that the appellant had a valid and legal right to the CANCIGOs, and the Custodian had no authority to claim them. The court also noted that the transactions involving CANCIGOs were not illegal or invalid, and the Benami Transactions Act did not apply to the case.