2019 (3) TMI 336 - HC - Benami Property

Appellate Court Reinstates Case, Emphasizes Need for Trial to Prove Fiduciary Relationship

The appellate court allowed the appeal, set aside the order rejecting the plaint, and restored the case for a decision on its merits. It found that the ... Rejection of plaint under Order VII Rule 11(d) CPC on demurrer - application of the Benami Transactions (Prohibition) Act to transactions held in a fiduciary capacity - recognition and proof of a fiduciary relationship between employer and employee - restoration of suit for trial where pleadings allege fiduciary relationRejection of plaint under Order VII Rule 11(d) CPC on demurrer - application of the Benami Transactions (Prohibition) Act to transactions held in a fiduciary capacity - Whether the plaint was correctly rejected under Order VII Rule 11(d) CPC on the ground that the suit was barred by the Benami Transactions (Prohibition) Act, 1988. - HELD THAT: - The Court examined the plaint on the basis of demurrer principles and held that dismissal under Order VII Rule 11(d) is permissible only where the plaint, read as a whole, discloses no cause of action or is barred by law on its face. The plaint contains factual averments (notably in paragraphs 5, 7, 9, 10, 11 and 12) that, if proved, would establish that the suit property was purchased from funds of the proprietary concern and that the property was held and agreed to be transferred for the plaintiff - i.e., the defendant was alleged to be holding the property in a fiduciary capacity for the plaintiff. The Court observed that whether such a fiduciary relationship is ultimately proved is a trial question and that the Benami prohibition does not automatically apply where the property is alleged to be held in fiduciary capacity. Reliance was placed on authority construing 'fiduciary capacity' broadly (analogous to trustee-beneficiary relationships) and recognizing that employer-employee relations may, on particular facts, impose fiduciary obligations. Given these averments, the plaint could not be non suited at the demurrer stage for being hit by the Benami Act. [Paras 15, 16, 17, 18]The plaint was wrongly rejected under Order VII Rule 11(d) on the ground of being barred by the Benami Transactions (Prohibition) Act; the question of fiduciary relationship must be tried.Restoration of suit for trial where pleadings allege fiduciary relation - recognition and proof of a fiduciary relationship between employer and employee - Disposition of the suit following the finding that the plaint should not have been rejected. - HELD THAT: - Having concluded that the plaint averred facts sufficient to raise a triable issue of fiduciary relationship and that the Benami Act defence could not be sustained on demurrer, the Court directed that the impugned order be set aside and the suit restored to the trial court for adjudication on merits. The Court made clear that the plaintiff must prove the pleaded fiduciary relationship at trial, failing which the Benami bar may operate to defeat the claim. The appeal was allowed and no order as to costs was made. [Paras 19]Impugned order set aside; Suit No. 929 of 2016 restored to the trial court to be decided on merits and in accordance with law; no order as to costs.Final Conclusion: Appeal allowed; the Single Judge's order of 8th February 2017 rejecting the plaint under Order VII Rule 11(d) as barred by the Benami Transactions (Prohibition) Act is set aside and the suit is restored to the trial court for decision on merits; no order as to costs. Issues Involved:1. Rejection of the plaint under Order VII Rule 11 (d) of the Civil Procedure Code, 1908.2. Applicability of Section 4 of the Benami Transactions (Prohibition) Act, 1988.3. Alleged fiduciary relationship between the plaintiff and the 1st defendant.Issue-Wise Detailed Analysis:1. Rejection of the plaint under Order VII Rule 11 (d) of the Civil Procedure Code, 1908:The appeal challenges the judgment and order passed by the learned Single Judge on 8th February 2017, which allowed the Notice of Motion for rejection of the plaint under Order VII Rule 11 (d) of the CPC. The learned Single Judge had concluded that the suit was barred by the Benami Transactions (Prohibition) Act, 1988. The appellate court noted that the learned Single Judge's decision was based on an incorrect reading and understanding of the plaint's averments.2. Applicability of Section 4 of the Benami Transactions (Prohibition) Act, 1988:The plaintiff's suit sought several reliefs, including the declaration of ownership of a suit flat and the transfer of the suit flat's ownership from the 1st defendant to the plaintiff. The 1st defendant filed a Notice of Motion for rejection of the plaint, arguing that the suit was barred by Section 4 of the Benami Transactions (Prohibition) Act, 1988. The appellate court found that the learned Single Judge had erred in dismissing the suit on this ground without allowing the plaintiff to prove the fiduciary relationship alleged in the plaint.3. Alleged fiduciary relationship between the plaintiff and the 1st defendant:The plaintiff contended that the 1st defendant held the property in a fiduciary capacity for the plaintiff's benefit. The appellate court examined the plaint's averments and concluded that the plaintiff had sufficiently pleaded a fiduciary relationship. The court highlighted several paragraphs from the plaint that supported the plaintiff's claim of a fiduciary relationship, including the plaintiff's trust and confidence in the 1st defendant, the use of business funds to purchase the suit property, and the 1st defendant's agreement to transfer the property to the plaintiff.The appellate court referred to legal precedents, such as Marcel Martins v. M. Printer and Central Board of Secondary Education v. Aditya Bandopadhyay, which recognized that fiduciary relationships could exist between employers and employees under certain circumstances. The court emphasized that whether the fiduciary relationship was proven would be determined at trial after both parties presented their evidence.Conclusion:The appellate court allowed the appeal, set aside the impugned order dated 8th February 2017, and restored Suit No. 929 of 2016 to the file of the Trial Court for a decision on merits. The court concluded that the learned Single Judge had prematurely dismissed the suit without allowing the plaintiff to prove the fiduciary relationship. The court also disposed of Notice of Motion (L) No. 511 of 2017 accordingly.