TaxTMI 
TaxTMI 
1988 (8) TMI 85
X X X X Extracts X X X X
X X X X Extracts X X X X
....kshi, the 3rd defendant. Plaintiff, Rajeev, and the 6th defendant, Sarala, are the son and daughter born in that marriage connection. Padmanabhan had acquired the property under exhibit A-1 sale deed dated February 9, 1961, executed by one Velayudhan. Padmanabhan died on July 4, 1965. It was soon thereafter that the 3rd defendant executed exhibit A-3 (the original is exhibit B-3) purporting to be a release deed in favour of the lst defendant, on her own behalf and on behalf of the plaintiff and defendants Nos. 4 to 6. Later, the 4th defendant affirmed that action by executing exhibit B-5 document on March 29, 1976. The plaintiff contended that his mother had no authority to alienate the property in which, he, as a legal heir of Padmanabhan, had a one-fifth share. The first defendant contended that he was the real owner and that Padmanabhan was only a benamidar. The second defendant is an assignee of a portion of the property. Decisions of the courts below: The trial court dismissed the suit. It held that Padmanabhan was only a benamidar. The appellate court differed from the trial court. It assessed the evidence independently and exhaustively. The fact that the consi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ell reflected in Roger White's academic article "The New Approach . . ." (1986 British Tax Review, page 18) where he imaginatively portrays the picture of the armchair and the little girl with the question: "Daddy, what did you do before Furniss v. Dawson ?") Scheme of the Ordinance : The Ordinance is a short one containing only four sections. It came into effect on May 19, 1988. The long title indicates the object as "to prohibit the right to recover property held benami and for matters connected therewith or incidental thereto". Section 2 is the material section Subsection (3) of that section has no application to the case., The remaining portion of section 2 may be conveniently extracted: "2. Prohibition of the right to recover property held benami (1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property. (2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n to Hindus and Muhammadans alike, and much in use in India Some further ground was covered with the weighty observation: " ... it is quite unobjectionable and has a curious resemblance to the doctrine of our English law that the trust of the legal estate results to the man who pays the purchase money, and this again follows the analogy of our common law that where a feoffment is made without consideration, the use results to the feoffor." It is doubtful whether the Privy Council did have the benefit of a studied lecture on the topic given by K. K. Bhattacharya in his Tagore Law Lectures(1884-85) on the topic "Joint Hindu Family" (pages 469 and 470 of the Lectures). The report in the ILR does not contain any reference to it, though the arguments and the authorities have been indicated somewhat elaborately. Bhattacharya branded benami as "having its origin in the dishonest motive of defrauding creditors of their just and lawful dues. . ." Three years later, delivering the opinion on behalf of the Board in Gur Narayan v. Sheo Lal Singh [1918] ILR 46 Cal (PC) 566 ; [1919] 49 IC 1, 5 (PC), Ameer Ali also made some general observations on benami. They read : " The system of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with. The passage of time did reveal that the benami transaction was not unobjectionable, even when looked from different angles. Social scientists, parliamentarians and even judges started expressing themselves against the practice in later times. The attack became more aggressive particularly after the independence of the nation and a self-presentation of the Constitution by the people to the people. Professor Nicholas Kaldor, the noted economist, looked into some of the challenging problems in the tax area and made a specific and strong condemnation of the system. He did not conceal his strong feelings in the matter. He said : "My feeling is that the Revenue would gain far more from screening all benami transactions at the outset than it would lose from any added difficulty in breaking the benami in the case of such fraudulent transactions." A Division. Bench of the Bombay High Court consisting of Patel and Wagle JJ., delivering the judgment in Hasman Gani Sahib v. Vidhadhar Krishnarao Mung. Appeal No. 533 of 1968, observed: "Moreover, the law permitting and recognising benami transactions results in a lot of wasteful litigation and enables all sorts of frauds to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on a critical comparison between the recommendation of the Law Commission and the positive provisions in the Ordinance may be dealt with in this context itself, though the question might pointedly be posed at a later place. The Law Commission did recommend an amendment in the law. Various alternatives were posed and their merits discussed in some detail. Paragraphs 6.29 dealt with exception for past transactions. The reasons were : "We do not consider it desirable that it should apply to past transactions, because those transactions would have been entered into after keeping in mind the legal position as understood at present, namely, that the real owner can always enforce his rights against the benamidar. This position is now proposed to be reversed and the reversal should not work in manner which will defeat the intention of the parties who acted under the old law. Of course, those benami transactions which have been entered into with the object of carrying out fraudulent or illegal motives, and which, therefore, fail within the specific provisions enacted by the Legislature to prevent the abuse of the practice of benami, are governed by those specific provisions, and the bar ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....round his title and could parade his proprietorship in full shine and strength. This right hitherto recognised by law, is unambiguously cut and curtailed by sub-section (1). The real owner is deprived of a right and a remedy, in view of the positive provision contained in section 1 of the Ordinance. He cannot bring any suit, claim or action raising the benami plea. That, of course, deals with a situation of the hereafter. What about pending actions ? If a suit has been already instituted, or other action already commenced for the establishment of the ownership of the property by the real owner, would it also be affected ? While attempting an answer to the query, attention could be focussed on the words: "No suit, claim or action ..... shall lie by or on behalf of a person . (emphasis supplied). The section mandates that no suit, claim or action, which raises benami plea shall lie. The section has an extraordinary sweep. It is not mere declaration that no suit of that nature hereafter could be instituted. The suit would not simply lie; nor would any claim (based on benami) lie. The words are wide enough to take any suit already instituted ; they are wide enough to bar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1966 SC 1423, 1426 (para. 11) and United Provinces v. Atiqua Begum [1941] AIR 1941 FC 15(38). If a defence is to be disallowed in a suit, it would then follow that it has to be disallowed in the continued projection of the same litigation, in the appellate stage or the still higher second appeal stage. The disallowance of a benami plea under the statutory provision is equally applicable with as much rigour in a claim or in an action. What in substance is the legal exercise of the appellants in the second appeal ? It is nothing else other than a defence of the benami character of the acquisition of the property. Such a defence is now put forward in proceedings under consideration by the High Court, namely, the second appeal. Could the second appeal pending before this court under section 100, CPC, answer the description of the term "action" as visualised in section 2(2) of the Ordinance ? A search for and settling of the true meaning of the word "action" has then to be attempted. The term has been construed as one of wide import, to take in the legal proceedings pending before a court of law or other administrative authorities. It is unnecessary to load this judgment with a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the courts should be slow to give an interpretation which would have retrospective operation upsetting settled rights of the citizens. The decisions on the interpretational techniques to be adopted by the courts were relied on to buttress that contention. Certain propositions are no longer in doubt. Within their own sphere, the powers of the Legislature are large and ample. They are competent to resort to retrospective legislation. If the law-making authority is entrusted with power or armed with the authority, the only further question is whether such power and authority have in fact been exercised. Retrospectivity can be inferred from the wording of the statute (Mst. Rafiquenessa v. Lal Bahadur Chetri [1964] AIR 1964 (SC) 1511). The question would be whether the new law speaks in a language clear enough to manifest retrospective operation. Statutes should ordinarily be interpreted as not to affect vested rights adversely. Retrospective character could be explicitly expressed or clearly implied. The statutory scheme would give the useful clue in the resolution of that controversy. The background of the enactment and the object underlying it could also be of aid. With t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s proof positive of a deliberate decision to deny protection to past transactions. The added experience of the Government during the intervening fifteen years after the submission of the Law Commission Report, apparently persuaded the Government to withdraw the protective umbrella from transactions of the past. Viewed that way too, if has to be held that the provisions act against and affect past transactions as well. Retrospectivity is readily inferable from these circumstances as well. In the light of the above discussion, I have no hesitation to hold that the ordinance takes in transactions entered into long ago and litigations instituted and already pending whatever be the age and stage of the legal proceedings. A constitutional objection based on art. 19(1)(f): Though not at the instance of the lst defendant, a contention was urged about the Ordinance violating the fundamental rights and consequently being invalid. In particular, counsel Shri M.I. Joseph (who appeared in response to an intimation by the court to the President of the Advocates' Association.) submitted that there is a clear infraction of article 19(1)(f) inasmuch as an unreasonable restriction on the ri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e anything pernicious in the benami practice. A rich taluqdar having two Hindu wives and Muslim mistress, satisfied all of them with his mighty means. The bungalow on the banks of a holy river where the Hindu wives could perform their religious rites need not be conceived of as an acquisition in which the beneficiary was the Muslim mistress. She could not, for obvious reasons, have utility of the river site for religious purposes. The property did not yield enough income to presume an intention of a financial accretion to an already well provided mistress. That was the background in which the well known passage on benami transactions happened to be made by the Privy Council, in the words already noted and quoted above. A comparatively recent decision of the Federal Court where some possible objectives of benami have been noticed by the Federal Court is Punjab Province v. Daulat Singh [1942] AIR 1942 FC 38. The objective, it was observed, might be a comparatively harmless one of circumventing the restrictions imposed under the "Government Servants' Conduct Rules", or to ward off claims by other members of the joint family. There can also be the more immoral, and for that reason, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....industrialisation the country has witnessed and the resultant proliferation of commercial operations have offered and opened up greater temptations for even an otherwise adventurous group of entrepreneurs. Quick money, and acquisition of it with rocket speed, would appear to be the set target of that group. Concealment of one's assets would serve many purposes for such persons who do not have much difficulty with their conscience. A risky business can be continued while profitable one put into in benami name. This will serve him well to cheat the Revenue and swamp the creditors. Corrupt practices could be better operated by money lying with seemingly innocent or insignificant persons. Sweeping social legislation like the land reforms can be easily overcome by benami-based manipulation ; and the goal is easily achieved if corrupt officials connive and political masters mind it not. It is this killing trend in current times that has called for drastic action. Recognition of benami transactions by the supreme judicial tribunal of the times presumably gave a free licence to immoral traders. It was an advantageous situation for the evader of public revenue. Whether there was justific....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the deprivation of such a defence, the appellants have necessarily to reconcile themselves with defeat in this litigation. Result of the discussion and decision : The above conclusions would entail a dismissal of the appeal. The second appeal will stand dismissed but without any order as to costs. Disappointments and acknowledgments There were reports in the Press about an apprehension on the part of the State Government whether some of the provisions of the Ordinance would tend to defeat the attempts of the State Government to help innocent victims of unscrupulous monetary manipulators, generally and deservedly referred to as "blade companies". This court ordered notice to the learned Advocate-General also so as to have the views of the State Government, particularly, in the above context. The opportunity so afforded was, however, left unavailed of. Counsel for the Central Government to whom a notice had been given, was unable to assist the court. Unlike the State Government, the Central Government had a duty to assist the court in the interpretation of the Ordinance. Counsel for the Central Government submitted that he had not received any instructions in the m....