1990 (3) TMI 28 - HC - Benami Property

Court dismisses defendants' applications, upholds suit under Benami Act; invokes Transfer of Property Act.

PNB. Finance Limited Versus Shital Prasad Jain And Others

The court dismissed the applications filed by defendants Nos. 2, 3, and 5, ruling that the suit was not barred by the Benami Transactions (Prohibition) ... Benami Transaction, Financing Company Issues Involved:1. Whether the suit against defendants Nos. 2, 3, and 5 is maintainable under the Benami Transactions (Prohibition) Act, 1988.2. Whether the allegations in the plaint constitute a case of benami transaction.3. Whether the plaintiff can invoke Section 53 of the Transfer of Property Act, 1882, in the context of the alleged fraudulent transfer of funds.4. Whether the issue of cause of action against defendants Nos. 2 to 5 should be treated as a preliminary issue.Issue-wise Detailed Analysis:1. Maintainability of the Suit under the Benami Transactions (Prohibition) Act, 1988:The defendants argued that the plaintiff's suit should be dismissed based on the Benami Transactions (Prohibition) Act, 1988, which prohibits the right to recover property held benami. The plaintiff countered this argument by stating that their allegations do not constitute a benami transaction but rather a fraudulent transfer of loan amounts by defendant No. 1 to defendants Nos. 2 to 5 to defraud the plaintiff. The court noted that the plaintiff's case was not about benami ownership but about fraudulent diversion of funds, which is not barred by the Benami Transactions (Prohibition) Act, 1988.2. Allegations Constituting a Benami Transaction:The defendants contended that the allegations in the plaint amounted to a benami transaction, which is barred under Section 4 of the Benami Transactions (Prohibition) Act, 1988. However, the plaintiff argued that their case involved fraudulent transfer of funds by defendant No. 1 to the other defendants, not a benami transaction. The court observed that the plaint did not allege that the properties were held benami but focused on the fraudulent diversion of loan amounts, thereby not falling under the definition of a benami transaction.3. Applicability of Section 53 of the Transfer of Property Act, 1882:The plaintiff argued that even if the transactions were considered benami, Section 53 of the Transfer of Property Act, 1882, which deals with fraudulent transfers, would save their suit. The defendants contended that Section 53 applies only to immovable property and not to movable property. The court referred to various judgments, including *Rajmal v. Moti* and *Ah Foon v. Hoe Lai Pat*, which held that the principles of Section 53 could be applied to movable property as well. The court concluded that Section 53 of the Transfer of Property Act, 1882, could be invoked in cases of fraudulent transfer of funds, thereby protecting the plaintiff's suit from being barred under the Benami Transactions (Prohibition) Act, 1988.4. Preliminary Issue of Cause of Action Against Defendants Nos. 2 to 5:The defendants insisted that the issue of cause of action against them should be treated as a preliminary issue. The court noted that the Division Bench had previously held that the allegations of diversion of funds could not be dismissed lightly and that the defendants could later prove the bona fide nature of their transactions. The court found the defendants' request to treat the cause of action as a preliminary issue unreasonable, especially after they had withdrawn a similar application in 1981. The court decided that the preliminary issue should be tried along with other issues in light of the Division Bench's observations.Conclusion:The court dismissed the IAs filed by defendants Nos. 2, 3, and 5, stating that the suit was not barred by the Benami Transactions (Prohibition) Act, 1988, as the allegations pertained to fraudulent transfer of funds. The court emphasized that the plaintiff's case was protected under Section 53 of the Transfer of Property Act, 1882, and that the issue of cause of action should be tried along with other issues. The court directed the case to be listed for fixing fresh dates of trial and emphasized the need for expeditious proceedings given the case's age.