1995 (1) TMI 67 - SC - Benami Property

Section 4(1) applies to suits instituted after commencement; does not extinguish substantive rights or affect pending suits filed earlier

R. Rajagopal Reddy And Others (Deceased By Legal Representatives) Versus Padmini Chandrasekharan (Deceased By Legal Representatives)

SC held that section 4(1) applies to bar suits instituted after its commencement even if the underlying benami transactions predate the provision, but it ... Benami Transaction - Whether section 4(1) of the Benami Transactions (Prohibition) Act, 1988 can be applied to a suit, claim or action to enforce any right in property held benami against a person in whose name such property is held or any other person, if such proceeding is initiated by or on behalf of a person claiming to be the real owner thereof, prior to the coming into force of section 4(1) of the Act? Held that:- The bar against the filing, entertaining and admission of such suits would have become operative by June, 1988, and to that extent section 4(1) would take in its sweep even past benami transactions which are sought to be litigated upon after the coming into force of the prohibitory provision of section 4(1); but that is the only effect of the retroactivity of section 4(1) and nothing more than that. From the conclusion that section 4(1) shall apply even to past benami transactions to the aforesaid extent, the next step taken by the Division Bench that therefore, the then existing rights get destroyed and even though suits by real owners were filed prior to the coming into operation of section 4(1) they would not survive, does not logically follow. No exception can be taken to the aforesaid observations of the learned author which in our view can certainly be pressed in service for judging whether the impugned section is declaratory in nature or not. Accordingly, it must be held that section 4 or for that matter the Act as a whole is not a piece of declaratory or curative legislation. It creates substantive rights in favour of benamidars and destroys substantive rights of real owners who are parties to such transactions and for whom new liabilities are created by the Act. The Division Bench erred in taking the view that section 4(1) of the Act could be pressed in service in connection with suits filed prior to the coming into operation of that section. Similarly, the view that under section 4(2) in all suits filed by persons in whose names properties are held no defence can be allowed at any future stage of the proceedings that the properties are held benami, cannot be sustained. As discussed earlier, section 4(2) will have a limited operation even in cases of pending suits after section 4(2) came into force if such defences are not already allowed earlier. It must, therefore, be held, with respect, that the decision of this court in Mithilesh Kumari's case [1989 (2) TMI 111 - SUPREME COURT] does not lay down the correct law so far as the applicability of section 4(1) and section 4(2) to the extent hereinabove indicated, to pending proceedings when these sections came into force, is concerned. Accordingly, the question for consideration is answered in the negative. The registry will now place all these matters before an appropriate Division Bench for disposing of them on the merits in the light of the answer given by us. Issues Involved:1. Applicability of Section 4(1) of the Benami Transactions (Prohibition) Act, 1988, to suits, claims, or actions initiated prior to its enforcement.2. Retrospective effect of Section 4(1) and Section 4(2) of the Act.3. Interpretation of the term 'lie' in Section 4(1).4. Legislative intent behind the Act and its provisions.5. Impact of the General Clauses Act on the repeal of Section 82 of the Indian Trusts Act, 1882.6. Declaratory nature of the Act.Detailed Analysis:1. Applicability of Section 4(1) of the Benami Transactions (Prohibition) Act, 1988, to suits, claims, or actions initiated prior to its enforcement:The core issue was whether Section 4(1) of the Benami Transactions (Prohibition) Act, 1988, applies to suits, claims, or actions initiated before the section came into force. The court concluded that Section 4(1) does not apply to such proceedings. It was held that the legislative intent was not to make Section 4(1) retrospective, and therefore, it cannot be applied to pending suits filed before the section's enforcement.2. Retrospective effect of Section 4(1) and Section 4(2) of the Act:The court noted that while Section 4(1) might have a limited retroactive effect in that it bars the filing of new suits based on past benami transactions, it does not affect suits already filed before the enforcement of Section 4(1). Similarly, Section 4(2), which disallows defences based on benami transactions, cannot be retrospectively applied to pending suits where such defences were already raised and allowed before the section came into force.3. Interpretation of the term 'lie' in Section 4(1):The term 'lie' was interpreted to mean that no new suits, claims, or actions to enforce any right in respect of any property held benami shall be admitted or entertained after the coming into force of Section 4(1). The court emphasized that this term does not imply that pending suits filed before the enforcement of Section 4(1) would be dismissed or abated.4. Legislative intent behind the Act and its provisions:The court examined the legislative history and intent behind the Act, noting that it aimed to prohibit benami transactions and the right to recover property held benami. The Act was not intended to have retrospective effect, as evidenced by the legislative choice not to explicitly make it retrospective. The court also referenced the Law Commission's recommendations and the legislative process leading to the Act's enactment.5. Impact of the General Clauses Act on the repeal of Section 82 of the Indian Trusts Act, 1882:Section 7 of the Act repealed Section 82 of the Indian Trusts Act, 1882. The court referred to Section 6 of the General Clauses Act, which protects pending proceedings from being affected by the repeal unless a different intention appears. The court held that pending suits invoking Section 82 of the Indian Trusts Act should continue unaffected by the repeal, as the Act did not express a clear intention to affect such suits.6. Declaratory nature of the Act:The court disagreed with the view that the Act is declaratory in nature. It held that the Act is prohibitory and creates new liabilities and rights, thus not fitting the definition of a declaratory statute. The Act prohibits benami transactions and destroys the rights of real owners to claim property held benami, indicating that it is not merely clarifying existing law but creating new legal norms.Conclusion:The court concluded that Section 4(1) and Section 4(2) of the Benami Transactions (Prohibition) Act, 1988, do not apply retrospectively to suits, claims, or actions initiated before their enforcement. The decision in Mithilesh Kumari's case, which took a contrary view, was held to be incorrect. The registry was directed to place the matters before an appropriate Division Bench for disposal on merits in light of this judgment.