Benami Transaction

[Cites 54, Cited by 0]

Law Commission Report

Benami Transaction

 

LAW COMMISSION OF INDIA

FIFTY-SEV ENTH REPORT
BENAMI TRANSACTIONS

August I 97 3

GOVERNMENT OF INDIA
MINISTRY OF LAW, JUSTICE 6:. COMPANY AFFAIRS



Chairman

LAW CONIMISSION
NEW DELHI---11000!
Dated: the August 7. 1973.

P. B. GAIENDRAGADKAR

My dear Minister,

I have great pleasure in forwarding herewith the 57th Report of
the Law Commission on 'Benami Transactions'. '

The circumstances in which. the subject was taken up by the Law
Commission are stated in the opening paragraph of the Report.

When the subject was taken up, at Questionnaire giving a brief
resume of the present position, setting out the problem and putting
forth the possible alternatives for reform of the law was prepared.
After approval by the Commission, it was circulated to State Govern-
ments, High Courts, Bar Associations, Chambers of Commerce and
other interested persons and bodies. The views expressed on the Ques-
tionnaire were studied, and a draft Report prepared on the subject.
This was considered by the Commission, and the Report was revised
in the light of the discussions.

With kind regards,

Yours sincerely,

P. B. GAJENDRAGADKAR

Shri H. R. Gokhale,

Minister of Law, Justice & Company Affairs,
Government of India,

NEW DELHI



Chapter N0.
CHAPTER 1
CHAPTER 2

CHAPTER 3

CHAPTER 4
CHAPTER 5

CHAPTER 6

C ONTENTS

Subjectmatter
Introduction . . . . .

Benami transactions in general

Benami transactions in English and Indian law
compared . . . . .

Statutory modiﬁcations relevant to Bcnami . .
Summaryfof present position

Amendments in the law . . . . .

PAGES

7-12
13-16

17-22
23-27
28-38

,  _ﬁ



CHAPTER 11
lN'_I'RODUC'_I'ION

1.

1 Genesis and scope of the Report.---The question of prohibit- ing bemtmi transactions has been taken up by the Law Commission on a reference made on the subject by the Union Government.' 1-2 In the letter of reference sent to the Law Commission, it is stated :--

"The problem of property held benamt' has been causing con- cern to the taxing authorities for some time. The Select Com- mittee on the Taxation Laws (Amendment) Bill, 1969 had also suggested that Government should examine the existing law relating to benami transactions with a view to determining whether such transactions should be prohibited. This sugges- tion was re-iterated in Parliament during the debate on the Taxa- tion Laws (Amendment) Bill, 1971."

Accordingly, the Law Commission has been asked to examine the matter and let Government have the beneﬁt of its advise on the ques- tion of prohibiting the practice 'of holding property benami.

. 1.3 The letter addressed by the Government refers to the views expressed by the Select Committee on' the Taxation Laws {Amendment} Bill, 1969. It appears that the Committee made the following com- ment'*:---

"45. Clause 43 (New Clause 34) ---As explained in paragraph 13, the Committee have decided to drop the new procedure for 're- cognition' of partnership ﬁrms and to continue the existing pro- cedure for registration of such ﬁrms with a few modiﬁcations.

During the course of the discussion of the modiﬁcations given effect to in this clause,_ it was suggested that Government should examine the existing law relating to benami transactions with a view to determine whether such transactions should be prohibited, and the Committee had' agreed to this suggestion."

1.4. During the debate" on the 'Taxation Laws' Amendment Bill 1971, one of the Members' commenting that the proposed amendment of the Income-tax Act was inadequate, observed as follows :--

"Even no-w, benami transactions are not debarred by law. A very drastic remedy is needed. That is the point that I am

1. Letter No. 2462,r'72/Adv. F, dated 20th [)BC€ﬂT;;l', 1972, of the Minister of Law to the Chairman, Law Commission.

2. Taxation Laws (Amendment) Bill, 1969---Report of the Select Committee (3rd August, 1970), page XVII.

3. Rajya Sabha Debates.

4. Shri T. N. Singh.

making. Merely saying that he will suﬁer in a certain way and that it will be discouraging the benami transactions is not enough. All benami traﬁaetions should be debarred under the law. And I want to know why it has not been done. Why do you want to encourage bennmi transactions indirectly by a sup- posed penalty or harm or by saying that the party may suller because he has done that? Why not debar it completely?"

1.5 Meaning oi 'benami tr-ansactinn'.--Purchase or holding of pro- perties in the name of another is known. in India. as a bencrmi trans- action. This custom has been recognised by Indian Courts for a long time. Literally, the word "benami" means 'without name'. The essential legal characteristic of these transactions is that there is no intention to beneﬁt the person in whose name the transaction is made. The name of that person, popularly known as the 'benan1ida.r', as the Privy Council pointed out. '=2 is simply an alias for that of the person beneﬁcially interested. The benamidar has the ostensible title to the property standing in his name; but the beneﬁcial ownership of the property does not vest in him but in the real owner.

1.6 Risk offset by greater advantage.---The1'e is always a risk in giving or holding property in names different from those of the real owners. But still, benami transactions are resorted to in order to avoid the greater risks referred to below. 2* ' 1.7 Factors accounting for the origin of benami.------The practice of benami might have come into existence by reason of a number of fac- tors :---

(a} The Joint Hindu Family system and a desire to make secret provisions is one factor" which might have led to the practice of benami.

(b) Fraud on creditors might be another such factor. As Blist- tacharya' has observed :--

"Since its ﬁrst establishment, the British. Government, in the exercise of its legislative functions, have from time to time made attempts to check the inveterate practice obtaining in India of holding property by one person in the name of another. This practice, having its origin in the dishonest motive of defrauding creditors of their just and lawful dues, has had so large and widespread prevalence here that the legis- lature cannot altogether put an end to it by a drastic enact- ment declaring the practice absolutely illegal in all cases."

1. Perher Pcrumal v. Mum'-tmdy, (1908) I.L.R_ 35 Cal. 551, 558 {Privy Council).

2. Gurnarain V. Sheolal, A.I.R. 1918 P.C. 140. 2a. See para l.7(d), below. _

3. West and Buhler, "Hindu Law', (Fourth Edition), pages 157', S63.

4. K. K. Bhattacharya, Joint Hindu Family, (Tagore Law Lectures) (1884-

85), pages 469, 470.

'-''.»Such 'astep would be.attend_ed withimmense _miscl_1ief- But. as the '-British-Govemment by its revenue laws has retained in . its hands the. supreme. control over the vast majority of land- ed property, there have been enactments' to discourage benami purchases at a revenue sale."

(cl Desire toievade "taxes may be another motive of persons enter- ing into benami transactions. The, victim here. Is not indi- vidual, but the State. Nevertheless, it is a species of fraud.

(d) Benami transactions. might also have originated in a desire to avoid certain political and social risks. According to Pol- lock,' "Practices of this kind (benami practices) naturally grow up in a state of society where there is an appreciable risk, from one generation to another, of hostile conquest or contiscations. And, having regard to the political state of India before and after the short-lived prosperity of the Mogul Empire, I do not see the necessity of explaining the frequency of these transactions by some supposed innate love of secrecy in the minds of oriental owners of property. Neither is there anything surprising in the persistence of the habits of-rthe kind after the reasons for them disappear. Our modern li.fe is full of these survivals in things great and small. Again, it is quite natural for ingenious persons to discover that the means of concealment which. formerly were a shelter from the strong hand of princes and adventurers can be turned in peaceful times to the less ambitious but not less lucrative end of baffl- ing creditors."

l.8 Judicial recognition of benami.-----Whatever the factors which ied to the practice of benanii, there is no doubt that it has a firm foot- ing in the legal system. Judicial recognition of the practice came very early in India. In one of the very early Calcutta cases} a purchase in the name of the wife's name was held to be "Farzi"' {fictitious}. It was held that the property vested in the person to whom the grant was actually made, and not necessarily in the person whose name was made use of.

1.9 Essence of benami h'ansaction.--The various aspects of benami transactions, and the relevant statutory provisions, will be discussed in detail, later. At this stage, it is suﬂicient to state that the essence of

1. The author cites several enactments to illustrate this proposition.

2. Pollock, Law of Fraud," misrepresentation mistake (1894), page 83, 84.

3. Sheikh Bahadur Ah' 1:. Shaikh Dhamu, l Calcutta Sud, R. Diw. Rep. 250, 251, cited in Tyabji, Muslim Law (1968), page 396, foot note 1.

4. (a) Baltmjyappa Cherry V. A31-umngcm Cherry, (1864) 2 M.I-l..C.R. 26.

.-(b) Bipen l_B'i=i'1aree Chaudhry V. Ram Chtmder Roy, (1870) 14 WR. 12. 15, (common form of Benami).

(e) Akbar Ali' v. Mahomed Faiz Buksh, (1871) 15 W.R. 12, 14.

benami transactions is the use of an alias in respect of the holding of property, usually, (but not always) with the object of concealing the real owner. Benami transactions are not conﬁned to purchases, and can extend to other modes of transfer.

1.10 Benami transactions common in India. It is not disputed that benami _transactions are common in India. As the Federal Court obsex'ved'--- ' "A practice has long been common in this country for intend- ing alienees of land to take the document of transfer in the name of their friends or relatives, sometimes with a view to defeat the claims of creditors, sometimes with a view to avoid claims by other members. of their own family, and sometimes to escape restrictions imposed upon them by Government Servants' Conduct Rules etc."

l.1l Sir George Farwell's observations in the Privy Council" may also be quoted :--

"Down to the taluqdar's death the natural inference is that the purchase was a benami transaction a dealing common to Hindus and Muhatnmadans alike, and much in use in India; 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 feolfment is made without consideration the use results to the feoifer."

1.12 In the leading case of Gosain v. Gosain', Lord Justice Knight Bruce, delivering the opinion of the Privy Council, took the view that. the English doctrine of advancement did not apply in India. He said----

"If then the person in whose name the purchase was effected had been a stranger in blood, or only a distant relative, no question could have arisen; he would have been prima facie a trustee, and if he desired to contend that the prima facie character of the transaction was not its real character, the burthen would have rested on him; but the individual in whose name the present purchase was eﬁected was the son. and at that time the only son, of the person who made the- purchase, and whose money it was, and it has been contend- ed that the circumstance changes the presumption, and that what would be the presumption in the case of a stranger does not exist between father and son; that the presumption is advancement, and that, therefore, the burthen of proof is.

l. Punfnhﬁihrrrvince v. Dania! Singh, A.I.R. 1942 38, 46 (Varada-- chariar J.) 2, Bilas Kmtwar V. Desraj Rartji! Singh (1915) I.L.R. 37 All. 557, 564, 565; A_.I.R. l9[5 P.C. 96; '

3. Gopeekrisr Gosain V. Gungapersand Gosain (1854) 6 M.l.A. 53.

shifted. Now, on this, as far as thvBi1_'_]_..:Ol'dShip5 can learn, there is noiauthority in Indian law, no 'distinct case, or dic~ tum. establishing or recognising such a principle. or such a rule. It is clear that in the case of a stranger the presumption is in favour of its being a benamee transaction, that is a trust; but it is clear also that in this country, where the person in whose name the purchase is made is one for whom the party making the purchase was under an obligation to provide, the case is different; and it is said that that ought to be deemed the law of India also. not because it is the law of England, but because it is founded 11 reason and the ﬁtness of things, if I may use the expression, or natural justice, that on such grounds it ought who considered the law of India. Now, their Lordships are not satisﬁed that this View of the rule is accurate, and that it is not one merely proprii ju.-is. Probable as it may be, that a man may wish to provide for his son to a certain extent, and though it may be his duty to do so, yet there are other considerations belonging to the subject; among others, a man may object to making his child independent of"

him in his life time, placing him in such a position as to enable him to leave his father's house and to die, leaving infant heirs, thus putting the property out of the control of the father. Various reasons may be urged against the abstract propriety of the English rule. It is merely one of positive law, and not required by any rule of natural justice to be incorporated in any system of laws, recognisinga purchase by one man in the name of another, to be for the beneﬁt of the real pur~ chaser. Their Lordships, therefore, are not prepared to act against the general rule, even in the absence of peculiar cir- cumstances; but in India there is what would make it parti- cularly objectionable, namely, the impropriety or immora-a lity of making an unequal division of property among; child~ ren. This might be more striking where there were more-

sons than one; but if the objection exists, it does not become less where there is only one son, for the father may have others, and in such a case the same objectionable consequ- ences would follow as where several sons were in being."

1.13 Legality of benami transactions.---In itself, a benami transac~ tion is not illegal, because "transfer of property", by its definition,' does not require that the transfer in favour of one person may not be- in the name of another person.

1.14 Propriety of benami transactions.--As to the propriety of benarni transactions, -the Federal Court observed":--~ "A notion has sometimes prevailed in this country that all benami transactions must be regarded as reprehensible and ].~Sect1'on 5, Transfer of Property Act.

2. Punjab P1'-nvince v. Dnulat Singh, A.I.R_ 1942 EC. 40 (Varadachariar

6. = improper, .-if.no_t illegalrbut, as late as_in l9,1,5. Sir George Farwell. 'delivering the judgment of thee Judicja; .; Committee in 37 All. 557' spokeof them as 'quiteélgncigjeetionable' and as having their analogues in the English law; and Mr. Ameer Ali. delivering the- judgment of the Committee in 46 Cal. 566", observed that 'there is nothing inherently wrong in it. and it accords, within its legitimate scope. with the ideas and habits of the peo-ple'. As indicated by the qualifying words 'within its legitimate scope', their Lordships' observations were clearly "not meant to countenance transactions entered into for fraudulent or illegal purposes."

l.l5 Resort to benami to commit fraud.----Every benami transac- tion is not harmless Past experience shows that benarni transactions have often been resorted to for furthering illegal or questionable objects, including the evasion of taxes. Benami transactions are some- times also resorted to in order to defeat creditors.

1.16 Legislative int-oads.---The legislature, realising this abuse of the practice of 'be-nami', has already made certain provisions to guard against the dishonest use of benami transactions.' 1.17 Legal and factual cont:-oversies.--Apart from these undesir-

-able consequences of benami transactions, it may be noted that the recognition of this practice as a part of the legal system creates contro- versies, both legal and factual, in the actual application of the law in courts; and this itself leads to complexity and uncertainty'. It appears to us that such. complexity and uncertainty is worth avoiding, if that can be done without causing any serious hardship.

1.18 Scope of rest of the Report. The rest of this Report Will. accordingly. be concerned with an analysis of certain aspects of benami transactions, so as to illustrate the legal and factual controversies refer- red to above? and with an examination of the justiﬁcation for a change in the law, and the direction in which the change could be usefully made.

1. Mr.' Bilas Kunwar Desraj Ranjft Singh, A.I.R. 1915 P.C. 96; 37 All. 557: 42 LA. 202 (RC).

Gur Narayan v. Shea Lat' Singh, A.l.R. 1918 RC. 140; 46 Cal, 566:

46 LA. 1 (P.C.)

3. See Chapter 4. infra.

See para 6.21, infra.

5. Para 1.17, supra.

[J 2'3 I CHAPTER 2 ' BENAMI TRANSACTIONS IN GENERAL 2.1 Nature of a benami transaction.--The nature of a benami transaction has been described by the Judicial Committee of the Privy Council' thus--_--- ' "The system of acquiring and holding property and even of carrying on business in names other than those of the real owners, usually called the henarni system, is and has been a common practice in the country .............. .. The rule ap- plicable to benarni transactions was stated with considerable- distinctness in a judgment of this Board delivered by Sir George Farwellf' Referring to a benami dealing. their Lord- ships say: "It is quite unobjectionable and has a curious re- semblance 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_ feoffrnent is made without consideration the use results to the beof't'er".

"So long, therefore, as a benami transaction does not contra- vene the provisions of the law, the courts are bound to give it eifect. As already observed, the benamidar has no beneﬁ- cial interest in the property or business that stands in his name; he -represents, in fact, the real owner, and so far as their relative legal position is concerned, he is a mere trustee for him ............. .."

2.2 As between the benamidar and the real owner, the law fully recognises the ownership of the real owner, and disregards the benami-

dar. This, of course, is subject to certain statutory exceptions, which will be dealt with in due course.' 2.3 Principle that transaction is presumed to be for beneﬁt of per- son providing money.---The principle is that where property is acquir- ed in the name of one person but the purchase price is paid by another, a presumption arises that the transaction was one for the beneﬁt of the person providing the money. Such cases are common in India where 'bellami' transactions are recognised.

1. Gurnarayan vfsheoral Singh, A.I.R. 1913 RC. 140, 143, H

2. Bilas Kunwar v. Besraf Ranjir Singh, AIR. 1915 P.C. 915 (Also see para 1.11, supra).

3. See chapter 4, infra.

I-n support of this general proposition, the undermentioned cases 1-"

may be cited :---

2.4 Benamidar represenﬁng the true owner.--In general, the bana- rnidar fully represents the owner of the property in dealings with. the third persons. In fact, that is the very object of benarni transactions. The property stands "in the name" of the benamidar, and a third party would not be able to challenge his title so long as the real owner does not come in the picture. The cases mentioned in the footnotes illus- trate or discuss the application of this principlef/3/9 At the same time, it is clear that the Benamidar cannot act in oppo- sition to the real owner."

2.5 Position as between real owner and third parties.»--As to the position between the real owner of the property and third parties, ordi- narily the real owner will not have an occasion to make any assertions about title. If, however. such a situation does arise, then law will have regard to the reality, and (disregarding the ostensible title of the bena-- midar), the law will allow the real owner to assert his ownership, as a genera], rule.

2.6 Statutory modiﬁcations of general principles.--JI'he general position regarding benami transactions has been modiﬁed, or may, in practice, become modiﬁed, by reason of certain statutory exceptions, chief amongst which are the following :

(i) Section 66, Code of Civil Procedure, 1908'."

(ii) Sections 41 and 53. Transfer of Property Act, 1882;"

(iii) Section 281-A. Income-tax Act, 1961, as inserted by the Taxa-

tion Laws (Amendment) Act, 1972 (45 of 1972)."

1. Gopee Kris! Gosain V. Ganga Prasad Gosain, (1854-57) IS M.I.A_ (P.C.) [See para 1.12 supra].

2. Bilas Kzmwar v. Desraj Singh, (1915) I.L.R_ 37 A11. 557; 42 LA. 202; 19 C.W.N. 1207 (P.C.).

3. Nrityammti Desi V. Lakhan Chander Sen, (1916) I.L.R_ 43 Cal. 660; 20 C.W.N. 552 [P.C.)

4. Rafa of Dan V. Abdullah, (1918) I.L.R_ 45 Cal. 909; 45 LA. 97; 22 C.W.N. 391 (P.C.).

5. Gar Nnrayan V. Shea La! Singh, (1919) I.L.R. 46 Cal. 566 (P.C.l

6. Promode Kumar V. Madan Mohan, A.I.R. 1923 Cal_ 228. 217 C.W.N. 305.

7. Murlidhar V. Parmmanand. A.I.R. 1932 Born. 190 (Shingne 1.).

8. Rardhakrishnan V. Union of India. A.I.R. 1959 Born. 102. 104, 105 (Shelat J.).

9. Gur Prasad V_ Hans-raj. A.I.R. 1946, Oudh 144, 145 (reviews cases).

l0. Radhakrishnan V. Union of India, A.I.R. 1959 Born, 102.

11. Chapter 4, infra. Also see 54th Report of the Law Commission.

12. Chapter 4, infra.

13. Para 4.3, infra, relating to section 281A, Income-Tax Act.

2.7 Expression "Benami" not frequently used in statute Iaw.----As a matter of legal theory, benami transactions, though familiar to every Indian lawyer, do not ﬁgure in many statutory provisions; and, with a few exceptions to be presently noted,' the word 'benami' remains rather a stray visitor to the world of legislation, though a familiar ﬁgure in the judicial sphere.

2.8 Section 82, Trusts Act---Resulting 'Trust. The most important provision which has the effect of giving a statutory footing to benami is in the Trusts Act" which creates a resulting trust_ ' 2.9. Uncertainty as to how far doctrine of benami survivors indepen- dently of the Trusts Act.--It is not very clear whether the doctrine of benami should now be regarded as resting on this provision of the Trusts Act, or whether the doctrine is to be treated as independent of it. Judicial decisions relevant to benami, though they occasionally refer to the provision in the Trusts Act, do not usually proceed to deal speciﬁcally with the above question. It should be noted that if the former view is correct, then the title passes to the benamidar, though he holds the property in trust. If the latter view is correct, then title does not pass at all to the benamidar. The latter view appears to be favoured by Mulla" and by some cases.' The former view has the support of observations in some cases.' 2.10. In an Oudh case', the Additional Judicial Commissioners discussed the case law on the subject. and the proposition was laid down that section 82, Trusts Act, appears to throw the burden of proof of benami on the person who alleges that the transaction is benami, while previously {i.e. before the Act) where one person paid the consi- deration, he could_ throw the burden of disproof on the other side.

2.11. Views that section 82 alters burden of proof.-According to another view? "section 82, Trusts Act, though it may not have really altered the burden of pmof, has made it much clearer than it was before that the burden of proof of establishing all the facts necessary to lead to the inference that a transfer was benami lies upon the person asserting it to be so."

1. Para 4.3. infra, relating to section 281A, Income Tax Act.

2. -Section 82, Trusts Act.

Cf. Mulla, Transfer of Property (1966), Commentary on section 53, page 272.

Para. 2.12. infra.

Para. 2.13 and 2.15, infra.

Raj Kimwar v. Rani Maharaj Ktmwar, A.l.R_ 1925 Oudh 243. Sardar Johan V. Smt. Afzal Begam, A.I.R, I94] Oudh 288, 292 (Y orks & Aggarwal 33).

P' 1 10 2.12. In at Bombay case. Shelat J. made the following observa- tions1:--- ' "Now, it is true that under sections 80 and 82 of the Trusts Act 21- benarnidar holds the property for and on behalf of the real owner in consequence of which there would be a result- ing trusts in respect of the property in favour of "the real owner". But then, it would be fallacious to urge from those sections that the legal ownership in such property vests in the benaruidar as it does in the case of trustee. What those sec- tions really mean is that a benamidar is in a ﬁduciary rela- tionship with the real owner and therefore has all the obliga- tions of a person in such ﬁduciary position towards the real owner. A benamidar is no more than an ostensible owner of the property he holds benami, though his acts in certain cir- cumstances would be binding upon the real owner. That is because the real owner holds him out to third parties as an owner of the property. It is, however, impossible. to say as in the case of a trustee that any right in the property either vests in him or that under section 13 and the sections follow- ing thereafter of the Trusts Act any obligations therein set out fall on him. In Gur Narayan V. Sheolal Singh, I.L.R. 46 Cal. 566: (A.I.R. 1918 P.C. l40(C)), their Lordships of the Privy Council stated that so long as a benami transaction did not contravene the provisions of the law the Courts were bound to give effect to it but they made it clear also that the bena-mi- dar has no beneﬁcial interest in the property that stands in his name; he represents in fact the real owner and so far as their relative legal position is concerned, he is a mere trustee for him."

2.13. There is an exhaustive discussion of the position in a Fede- ral Court judgment." We quote only the important portion : ~-

"It is true that the Indian law does not recognise an equita- ble ownership in the sense known to the English law, because we here do not, as in England, have two kinds of law or juris- diction, viz._. common law and equity; but on an analysis of the legal incidents involved, it will be found that for all prac- tical purposes there is little or no diﬁerence between a bene- ﬁciary under the English law and a beneﬁciary under the Indian Trusts Act, so far as the substance of their rights is concerned. I may ﬁrst point out that so far as the "rights and privileges are concerned, there is little or no difference between a beneﬁciary under an express trust and a beneﬁ- ciary under a resulting or constructive trust, if we leave alone questions arising under the Limitation Act. Section 82, Trusts Act, which deals 'with benami transfers, occurs in the chapter

1. Radhakrishnan V. Union of India. A.l.R. 19fi9 Born. 102, 104. 105 (Shelat 3.).

2. Punjab Province V. Daulat Singh, A.I.R. 1942 EC. 38--43 (Vanda- chariar J.) 11 beginning with section 80,- which provides that an obligation in the nature of a trust is created in certain speciﬁed cases'. and section 82 enacts that the transferee must hold that pro- perty for the beneﬁt of the person paying or providing the consideration. Section 95 re-aﬂirrus the provision implied in section 80. In the case of express trusts. the Act describes the beneﬁciary's rights against the trustee as "beneﬁcial inter- est or interest of the beneﬁciary-" Under section 55, the beneﬁciary has, subject to the provisions of the instrunaent of trust, a right to the rent and proﬁts of trust property and un- der section 56 the beneﬁciary, if there is only one and he is

- competent to contract, may require the trustee to hand over possession of the trust property to himself. This is almost a matter of course where. as in benami transactions, the holder of the legal title is only a bare trustee. Under section 58, the beneﬁciary, it competent to contract, may transfer his interest, and under section 69, every person to whom a beneﬁciary transfers his interest has the rights of the beneﬁciary in respect of such interest at the date of the transfer."

2.14. The following statement of the law is from a Madras case'~.----

"When a person acquires an interest in property with his funds in the name of another for his own beneﬁt, the latter is called a benamidar. A benamidar is not a trustee in the strict sense of the term. He has the ostensible title to the property stand- ing in his name, but the property does not vest in him but is vested in the real owner. He is only a name lender or an alias for the real owner. The cardinal distinction between a trustee as known to English law and a henarnidar lies in the fact that a trustee is the legal owner of the property stand- ing in his name and the center' que trust is only a beneﬁcial owner, whereas, in the case of a benami transaction, the real owner has got the Iegal title though the property is in the name- of the Iaenaniidar ....... ..If 21 mortgage stands in the name of a benarnidar, the person for whom the mortgage was "obtain. ed could sue on the mortgage, and the same rule applies to other transactions except those forbidden by law. The bana- rnidar has some of the liabilities of a trustee but not all his rights. When the benarnidar is in possession of the property standing in his name, he is in a sense the trustee for the real owner."

2.15. In an Oudl; case', however, it was o-bserved--

"A henarnidar holds the property as :1 Irttstee for the beneﬁ- ciary'. The legal title in the property vests in him and not in

1. Pitchcryyu v. Rertfamma, 1I.R. 1929 Mad. 2-ss, 269 (Devaa;s?:n:a Walsh JJ.)

2. Prasrrd v. Hdrirrai, A.I.R. 1946 Oudh 144. 145 (Ghulam Hasan

3. Emphasis supplied.

2-1 LAD (now-a 12 the beneﬁciaries. As a legal owner, a benamidar has the right to sue for possession against a trespasser. In 58 LA. 279', the Privy Council remarked that Indian law does not recog- nise legal and equitable estates. According to that law there can be but one owner, and where the property is vested in a trustee, the owner must be the trustee."

2.16. These decisions" show that the legal position is somewhat obscure as to the vesting of the title. They show the misconception that is likely to arise, so long as benami is recognised.

_l. Chhatra Kumari Devi V. Mohan -Bikram Shah, (I931) A.[.R. 1931; EC. 196: 58 LA 279.

2. Para 2.15, supra.

CHAPTER 3 BENAMI TRANSACTIONS IN ENGLISH 3.1. In.troductory.---In this Chapter, we propose to make a brief comparison of the Indian law in regard to benarni with the English law on corresponding matters.

3.2. General rule in England.--The general rule in England is that where a person purchases property in the name of a third person, a trust "results" in favour of the purchaser (or his representative). This is not, however, an absolute rule; it is a presumption which varies ac« cording to the facts. There is an important diﬁerence as bewveen con- veyance to a relation (of the purchaser) and a: conveyance to a person who is not a relation. In the former case, the presumption is that the purchaser did not intend to beneﬁt the nominal transferee, a.nd a trust results to the man who advanced the purchase money} 3.3. Purchase in another's name a common form of resulting trust in England.--Purchase in another's name has been described in England' one of the most important and common forms of resulting trusts. The rule is that where real' or personal' property is vested in a purchaser jointly with others or in another or other persons alone, a resulting trust will be presumed in favour of the person who is proved to have paid the purchase money; the beneﬁcial interest in the property "results" to the true purchaser. The general principle of such trusts was -established as long ago as 1788 in Dyer v. Dyer' by Eyre C. B. ' Section 82. Trusts Act is based on the same principle.

3.4. English rule based on presumption. Primarily, the English rules on the subject are based on the intention of the parties.

Upon similar grounds i.e. on the ground of intention, where a man buys land in the name of another, and pays the consideration money,"

there is a resulting trust in his favour.

1. Dyer V. Dyer'. (£788) 2 Cox 92.

2. Parker and Mellows, Modern Law of Trusts, (1966), page "101.

3. Dyer V. Dyer, (1788) 2 Cox Eq. 92 {real property).

4. Re Scorish Equitable Life Assurance Society, (1902) Ch. 282 (in respect of personal property).

5. Dyer V. Dyer, (1783) 2 Cox Eq. 92, 93.

6. Rider v. Kidder, 10 Ves. 360.

13 14

As has been stated.' "The clear result of all the cases, is" that "the trust of a legal estate, whether freehold, copyhold, or leasehold; whe- ther.-.taken in the names of the purchaser and others jointly, or in the name of others, without the purchaser; whether in one name or several; whether jointly or successively (successive), results to the man who ad- vances the purchase-money. This is a general proposition, supported by all the cases, and there is nothing to contradict it. And it goes on a strict analogy to the rule of the common law, that, where a feoffment is made without consideration, the use results to the feotfor".

3.5. Supply -of money basis of 1'u]e.----In truth, this rule has its origin in the natural presumption' in the absence. of all rebutting cir- cumstances, that he who supplies the money means the purchase to be for his own beneﬁt, rather than for that of another; and that the con- veyance iii the name of the latter, is a matter of convenience and ar- rangement between the parties, for other collateral purposes. The same doctrine is applied to cases where securities are taken in the name of another person, as, if A takes a bond in the name of B, for a debt due to himself, B will be a trustee for A for the money.' 3.6. l'nesump|1ion 1_'ebuttable---Presumpﬁon of advancemenl1.--The presumption which arises on a purchase in the name of another is re-buttable by parol or other evidence that the purchaser intended to beneﬁt the other. Further. in certain circumstances there is a presump- tion the other way, namely, that there is no resulting trust. This ap- plies where the person in whom the property is vested is the lawful wife or child of the purchaser-or was a person to whom he stood in loco pareittis.

3.7. Exception as to child based on moral obligation. As regards the exception recognised in English law (in respect of cases where pro- perty is purchased by a parent in the name of a» son), it has been stated' that the moral obligation of a parent to provide for his children is the foundation of this exception, "since it is not only natural, but reasonable in the highest degree, to presume that a parent, by purchas- ing in the name "of a child, means a benefit for the latter in the dis- charge of this moral obligation, and also as a token of parental affec- tion". The like presumption exists in the case of a purchase by a husband in the name of his Wife and of securities taken in her "name?

, I. Dyer V. Dyer, (1788) 2 Cox 92, 93 (Eyre C.B.).

2. Story, Equity Jurisprudence, (1919), page 507, para_ 1201.

3. (a) Ebrand V. Dancer, 2 Ch. C. 26; se. 1 Eq. Abr. 382, pl. 11:

2 Mad. Pr. Ch. 101.

(b) Lloyd V. Read, LP. Win. 607.

4. Story, Equity Jurisprudence, (1919), page 508, paragraph 1203.

5. Dunbar V. Dunbar. (1909) 2 Ch. 369, I01 L.T. 553.

l5 3.8. Presumptiou of advancement also rebuttab1_e.--l-Ioweveri just as the presumption of a resulting trust may -be rebutted, so also may the presumption of advancement be rebutted; and it may be done in the same way by evidence of actual intention.

3.9. No rebuttal where trarluileiiit or illegal purpose.---There is yet a further restriction on the ability to adduce evidence in rebuttal of the presumption. This is that the transferor cannot rebut the presump- tion by evidence that the transfer was for a fraudulent or illegal pur- pose and the transferee intended to retain the beneﬁcial interest. Ac- cordingly, where a husband took a lease of land in his wife's name in order to protect the property from creditors, it was held that he could not adduce evidence to show that he did so for the purpose men-_ tioned above} It will be found that there. were two relevant intentions in the above case." The first was the intention of the husband that the house and land should, so far as the beneﬁcial interest was concerned, be and remain his. The second intention was that he put the land and house into his wife's name with a view to protecting it from his credi- tors in case he should get into ﬁnancial difﬁculties.

The first intention was not given recognition because of the second.

3.10. In England, the principle applies also where the purpose of the transfer is to defeat revenue laws,-----where English or foreign.' Equity will not assist a person who seeks to contravene revenue laws---« whether English or foreign.

3.11. Purchase in name of stranger---Eiiglisli law.---So far as the purchase in the name of a stranger is concerned, the position is not different in England and in India. Under the Trusts Act,' there is a resulting trust in this case.

3.12. Presumptiion where transfer in favour: of relation and English law.----If the conveyance is to the wife or child of the purchaser, then the presumption (in England) is the other way, namely, that the pur- chaser intended to beneﬁt the child or wife. This is known as the presumption of 'advancement'! This presumption displaces the pre- sumption of resulting trust, on the logic that in view of the relationship I. :Cr'a.r)coigne v. Gascoigne, (1918) 1 223 (Intention_t--o:lefeat credi- ors .

2. Gascoigne v. Gdscoigne, (1918) I K.B. 223.

3. Re E_mery's Investment Trusts. (1959) Ch. 410; (1959) 1 All ER_ 577 (Evasion of tax of friendly foreign country).

4. Section 82, Indian Trusts Act, 1882.

5. Para 3.6, supra.

between the true purchaser and the nominal purchaser, it may be pre- sumed that a gift to the nominal purchaser was intended. This pre- sumption of advancement is also rebuttable by evidence to the con- trary, whenever the consideration for the purchase of property is ad- vanced by another person.

3.13. Indian law eiilfei-ent.--Whe1'e the purchase is in the name of. a relation, the Indian law is the reverse of the English law. The pro- vision in the Trust Act' as to resulting trusts continues to operate, and is not displaced2 by a presumption of advancement as in England."

The English presumption of advancement has not been applied in India on the ground that it is a rule of positive English law and not , founded on natural justice.'-5 Of course, evidence of intention could still be given to turn the scales,' and it appears that very little evidence might suﬁice to turn the scale. But the initial presumption is as stated above.

Section 82, Trusts Act.

Guran Dina V. Ram Dirrcr, (1928) 32 Calcutta Weekly Notes 871 A.I.R. 1928 P.C. I72.

Para 3.6 to 3.12, supra. -

_G'opeekrr't V. Gunga Frame', (1854) 6 Moore's Indian Appeals :53. See also para 1.12, supra.

Mohammad Sidiq v. Fakhalr Johan, (I931) 59 LA. 1, I5.16. 36 Calcutta Weekly Notes 137, 146 (RC).

34!"

S7'5":"'*E-"

CHAPTER 4 STATUTORY MODIFICATIONS RELEVANT TO BENAMI 4.1. Statutory modiﬁcations of general principle recognising benami.--So far. in India, two important statutory modiﬁcations of the general principle that the real owner is recognised by the law in place I of the 'benatnidar' have been made. The ﬁrst is in the Code of Civil Procedure; the second is in the recent amendment of taxation laws. Certain other provisions are also of interest.

4.2. Seiztion 66 Civil Procedure Code.--As regards the first, the relevant section' in the Civil Procedure Code (so far as is material) provides that no suit shall be maintained against any person claiming title under a purchase certiﬁed by the Court, (in such a manner as may be prescribed) on the ground that the purchase was made on behalf of the plantiif or on behalf of someone through whom the plantilf claims. .

Similar provisions exist for revenue, sales and have a long history. Under Regulation 11 of 1822, the Government was empowered. by section 19 and 20, to cancel and annul benami purchases made at a sale for arrears of revenue. The next enactment upon the subject is contained in Act 12 of 1841, section 22 whereof provides that 'any suit brought to oust a certiﬁed purchaser as aforesaid on the ground that the purchase was made on behalf of another person not the certi- ﬁed purchaser, though by agreement the name of the certiﬁed purchaser was used, shall be dismissed with costs'.

lt is unnecessary to refer to later versions of this provision.

lt may be added that we have, in our Report on the Code of Civil Procedure," recommended an extension of the principle of this provision so as to prohibit also the pleading o-f a defence based on 'benatni' in such cases. This provision, it may be noted, is conﬁned to sale certi- ticates issued by courts. It does not prohibit 'benarni' transactions in general. , l ' 4.3. Section 281-A, Income-tax Act, 1961, inserted in 19'72.--So far as the recent amendment in Taxation laws is concerned," the effect of the amendment is not to prohibit 'benami', but to avoid its being mhml. Section 66(1), Code of Civil Procedure, 1908.

2. 54th Report of the Law Commission (Code of Civil Procedure) (1973), paragraph 1-E. 53.

3. Taxation Laws (Amendment) Act, 1972.

I7 18 made the basis of a suit unless compliance with the prescribed require- ments is made. These requirements, broadly speaking, are intended to ensure that the taxing authorities concerned with income tax and » wealth tax acquire knowledge of the transaction alleged to be benami.

4.4. The germ of such a provision is to be found in the Report of Professor Kaldor' on Indian Tax Reform. Professor Kaldor had made the following observations :---

"As regards benami transactions, my suggestion i.s that the benami holder should be asked to disclose the na.me of the beneﬁcial owner at the time of the registration and in the event of his failing to do so (and declaring that he is not the beneﬁcial owner himself? he should be treated as thebeneﬁcial owner in law. This provision is clearly "intended to deter a person from entering into a benami transaction just for the purposes of tax evasion. While it may be true that a certain amount of personal trust is involved between the benami and the real owners in all such cases, I seriously doubt whether the system could continue to exist but for the recognition of benami in common law. Even retention of the title deed would not protect the true owner in case the benami holder formally declared that he was the beneﬁcial owner of the pro- perty; and in case the true owner protected himself further through I.O.U.s, mortgage deeds, etc., this would call For (as indicated in para 93(g) (above) the same kind of disclosure "It has been argued that the proposal would make it more difﬁcult to defeat malaﬁde transfers of property undertaken to prevent attachment of property in view of outstanding demands. I should be interested to know the number of cases in which the Revenue succeeded in breaking the benami through court action. My feeling is that the Revenue would gain far more from screening all benami transactions at the very outset than it would lose from any added cliﬁiculty in breaking the benami in the case of such fraudulent tran- sactions. ' 4.5. A similar recommendation was made by the Administrative Reforms Commission," also. Accordingly, the Government sponsored legislation through the Taxation Laws (Amendment) Bill, 1971 to dis- courage benami holding of property. Under the provision inserted as section 281A of the Income-tax Act, 1961, no suit shall be instituted in any court to enforce any right in respect of any property held benami unless the claimant has either disclosed the property in question or the income therefrom in connection with his wealth tax or income-tax assessments or given notice to the Income-tax Officer about the parti- culars of suchproperty in the prescribed form.

I 1. ]Nicho1as Kaldor, Indian Tax Reform (1956), pages 58-59, para. 10:1'-

05.

2. See Direct Taxes Enquiry Committee, Final Report, (Dec 1971), page 66, para 2.231.

4.6. Provisions in the Income-tax Act.---The special case of the husband or father transferring assets to the wife or minor child (other than a married daughter) is dealt with by a more direct provision' in the Income-tax Act,----a provision which has been on the Statute Book for a long time.

There are also other provisions in the Income-tax Act} designed to check the avoidance or evasion of tax (or its recovery) by fraudulent and other transfers. ' 4.7. Section 41, Transfer of Property Act.--We may also refer to provision relevant to Benami transfers in the Transfer of Property Act." The law of estoppel is enacted in section 115 of the Indian Evidence Act, and the leading case on that section falls equally under this provision of the Transfer of Property Act. In that case,' the owner transferred property to- his wife as benamidar. After his death, she mortgaged the property, her son assisting in the transaction and re- ceiving the mortgage money. The son was held to be estopped from disputing the mortgage. If the provision in the Transfer of Property Act' had been applied, the case would have been similarly decided on the ground that by the consent of the son, the mother was the ostensible owner.

4.8. Fraudulent transfers of property are dealt with by another pro- vision in the Transfer of Property Act,"--namely, section 53.

4.9. With reference to section 53, Transfer of Property Act (frau- dulent transfers), it may be noted that before that Act, there was in force,' is Presidency towns," an English statute" covering all types of property and all types of transfers." This English statute. was in har- mony with the common law. The Transfer of Property Act, repealed this English Statute." The present section 53 (if the Act) does not cover benami or sham transfers. But such transfers can be declared void independently of the section.

Section 64, Income-tax Act, 1961.

Sections 175, 178, 230A and 281, Income-tax Act, 196]. Section 41, Transfer of Property Act.

Sara: Chimder V. Gppal Chunder, (I863) I.L.R. 20 Cal. 296, .19 I.A. 203 (P.C.) Section 41, Transfer of Property Act.

Section 53, Transfer of Property Act.

13 Eliz. C-5.

See I.L.R. 25 Bom. 202, 208.

Cf'. Twynes' cars, (1601) 3 Co Rep. 80 and Mul1a's commentary on section 53, Transfer of Property Act.

10. See, now, section 172, Law of Property Act, 1925 (Eng.).

11. See Mulla's commentary on section 53, Transfers of Property Act.

3°?°:"-'.°'5-" :'=*E-"."-'3"

4.10. Principle wen established.--The principle underlying section 53 of the Transfer of Property Act is in accordance with justice, equity and good conscience, and has been held applicable even in areas where the Transfer of Property Act is not in force, or in cases" not covered by the language of the section.

4.11. Section 84, Trusts Act---T1-ansfer for unlawful purpose.-~ Where any transfer of property is intended to effect an unlawful pur- pose, and the unlawful purpose is not carried out, the transfer can (subject to certain qualiﬁcations) be disregarded. This principle, which forms the basis of a speciﬁc provision" (as to illegality) in the Trusts Act, is also relevant to the subject of benarni transactions entered into for an illegal object. (Under a provision of the Transfer of Property Act," as transfer for an unlawful object is void).

4.12. Principle.--In a Calcutta case,' Asutosh Mookerjee J. after referring to all the available Indian case law and discussing the English and American cases bearing on the subject, wound up his judgment with the following quotation from a decision of the Supreme Court of the United States.' "The law leaves the parties to such contract as it found them. If either-has sustained a loss by the bad faith of a particeps crimins, it is but a just infliction for premeditated and deeply practised fraud which, when detected, deprives him of antici- pated proﬁts, or subjects him to unexpected losses."

This states succinctly the general rule as to the etfect of illegality.

4.13. Indian case law as to illegal I1-ansfers.--The Federal Court of India" and the Supreme Court," as well as the High Courts," have had occasions to consider whether the beneﬁcial owner ought to be al- lowed to recover from his benamidar when the latter proves -that the

1. Mt. Akcrramunnisa v. Mustafanrz. A_.I.R. 1929 "A11. 238.

2. Ma'. Ishaq v. Md. Yusrtf. A.I.R_ I927 Lah 420.

(a). Abdul Hye v. Mir Mohamed, (1333) J.L.R. 10 Cal. 515 (1=.c.)

(b) Chfdambaram V. Srfrtivas, (1914) I.L.R. 37 Mad. 227 (I-".C.) (Moves.- ble Property}.

. Ramanathan v. Umuzmalai, A.I.R. 1942 Mad. 632.

. Section 84, Trusts Act. [See para 4.15 infra] . Section 6(h)(2), Transfer of Property Act.

. Raghtrpati Chafterji v. Nari Shinga Han' Dar, A.I.R. 1923 Cal. 90. Barties v. Coleman, 4 Peter 184 (Baldwin 1.).

. Punjab Province v. Dautat Singh, A.l.R. 1942 EC. 33, 40, 41 (1942) F.C.R. 67, 75, 76.

10. Kcrdar v. Prahlad (1960) S.C.I. 1072 A.I.R. 1960 S.C. 213',

11. See(a) Quadir Baksh v. Hakrrm, A.I.R. 1932 Lab. 503 (E13,) (reviews cases);

lb) Pranbaallav v. Tutsi bala Dassi, A.I.R. 1958 Cal. 713, 725, para 114.

DJ xopo-.Jo«'~.n4:

intention of the parties was to commit anillegality. The present posi- tion' seems to be that where the illegal obyect is not carried out or where other special reasons exist, the illegality will be disregard.ed.

The matter has also arisen before the Privy Council in appeals from other countries.'-"-' In these cases, it would be against the_ public policy to allow the defendant to violate his hduciary relationship with the plalnttff.

"He must not expect -that a judicial tribunal will degrade itself by an exertion of its powers, by shifting the loss from the one to the other, or to equalize the beneﬁts or burthens which may have resulted by the violation of every principle of morals and laws. As Chancellor Walworth puts it: "Wherever two or more persons are engaged in a fraudulent transaction to injure another, neither law nor equity will interfere to relieve either of these persons, as against the other, from the conse- quence of their own conduct."

4.14. Position where illegal purpose not carried out.--The Privy council" dealt with the questio-n why the maximum in' pan' d'eIico- should not be applied. where the illegal purpose is not carried out, in these words :

"The answer to that is that the plaintiff, in suing to recover possession of his property, is not carrying out the illegal transaction, but is seeking to put everyone, as far as possible, 'in the same position as they were in before that transaction was determined upon. It is the defendant who is relying upon the fraud, and is seeking to make a title to the lands through and by means of it. And, despite his anxiety to effect great moral ends, he cannot be permitted to do this. And, there- fore, the purpose of the fraud having not only not been effect- ed, but "absolutely defeated, there is nothing to prevent the plaintiff from repudiating the entire transaction, revoking all authority of his confederates to carry out the fraudulent scheme, and recovering possession of his property."

In a Calcutta case, Bachawat J. stated the position thus,' "Inlnd1an1aw the transfer claiming that the transfer is void may sue to recover the property on the strength of his original title, and, I. See para 4.14 at sec infra.

2. Sajjan sing}: v. Sardara A11' (1960) 1 All. E.R. 269 (P.C.).

3. Chertiar v. Chetriar, (1962) 1 All ER. 494 (PC), commented on by Derrett in 11 I.C.L.Q. 864.

4. Mistry Amar Singh V. Kulubra, (1963) 3 A11. ER. 499 (RC).

5. Petherpermal Cherry v. Mmziandy Seervai, (1908) I.L.R. 35 Cal. 550, 558, 559 (P.C.). '

6. Pmnbaliav V. Tulsibafa Dam', A.I.R. 1958 Cal. 713, 7225, para. 1l4_ 22 in general, he may be given relief though he is particeps criminis, in the following cases:

(a) Where his case falls within one of the three exceptions recog-

nised by section 84 of the Indian Trusts Act,--or

(b) (i) Where public interest or the interest of third parties requires that the relief should be given, or (ii) Where denial of the relief may defeat a legal prohibition, or (iii) where the transaction is such that it ought to be allowed to stand on grounds of public policy.

"Relief may be given upon such terms as the justice of the case may require."

[Section 84 of the Indian Trusts Act recognises three exceptions to the rule denying relief to a particeps criminis. Where the owner of the property transfers it to another for an illegal purpose, the trans- feree must hold the property for the beneﬁt of the transferor if (a) the illegal purpose is not carried into execution, or (b) the transferor is not as guilty as the transferee, or (c) the effect of permitting the trans- feree to retain the property might be to defeat the provisions of any law. The transferor is prima facie entitled to recover the property from the transferee if his case falls within one of these three excep- tions.] 4.16. The transfer of property under: illegal 'I'ransaetions--position in England.---In England,' the prevailing view is that where property has been transferred under an illegal contract, and the parties have, in addition, observed all the formalities necessary for conveying title to the particular property concerned, then title to that property will pass, regardless of the illegality of the transaction.' 4.17. Sections 422-424, Penal Cod'e.--The Indian Penal Code has also certain provisions" punishing fraudulent deeds and disposi- tions of property. These are wide enough to cover fraudulent benamin transactions.

1. (_a) Scarf V. Morgan, (1838) 4M & W 270;"

(b) Taylor V. Chester. (1869) 4 QB. 309';

(c) Bowmaker Ltd. v. Borne: Instruments. (1945) 1 K.B. 65 (C.A.),

2. See Hamson, "Illegal Contracts and Limited Interests", (1949) I0 Carnb. L]. 249, 251 who describes it as "trite law".

3. Sections 421 to 424, Penal Code.

CHAPTER 5 SUMMARY OF PRESENT POSITION 5.1. Intrurluotim-n.-----In this Chapter. we shallsummarise the pre sent position as to benami transactions.

5.2. Summary of present poition----in gener£I.---A few basis points concerning benami transactions may be stated. as follows:

{at Benami transfer or transaction means the transfer by or to a person who acts only as the ostensible owner in place of the real owner whose name is not disclosed;

(b) The question whether such transfer or transaction was real or benarni depends upon the intention of the beneﬁciary:

(c) The real owner in such cases may be cailed the beneﬁciary, and the ostensible owner the benarnidar.' ILLUSTRATIONS 'A' purchases property in the name of his relation 'B'. 'A' sup-

plies the consideration and 'B' merely lends his narne. 'A' is the benc- liciary and 'B' his benamidar.

5.3. Eﬁect of benami transfer..--The eifect of a benarni transfer is as follows":«--

(at A person does not acquire any interest in property by merely lending his name;

(b) The benamidar has no beneﬁcial interest though he may re- present the legal owner as to third persons.' (C) A benamr' transaction is legal, except in certain speciﬁed situa- tions. .

5.4. Statutory provisions ne-inforcing benami.--There are statu- tory pr0visi0nS--(i) re-inforcing benatni, or (ii) modifying it, or (iii) of a special nature. The Indian Trusts Act' contains a general provision. under which, where property is transferred to one person for a consi- deration paid or provided by another person, and it appears that such other person did not intend to provide such consideration for the bene- ﬁt of the transferee, the transferee must hold the property for the bene- ﬁt of the person who paid or provided the consideration. The eﬁfect of this povision is to reinforce the doctrine of benami.

Gour. Hindu Code (1938), page 726, para, 218, Gﬂllf, Hindu Code (1938), page 726, para, 219. See para 2.11 to 2.14, supra.

Section 82, Trusts Act.

.5'-?"'?"'.""

23 24

A "resu.'lting trust" arises in such cases; and it is not readily re- butted---as in EngIand----by the presumption of advancement where the transfer is in favour of the wife or child of the person who provided the consideration. Rather, where the transfer is in favour of the wife or child, the courts are more ready to give eifect to this provision (of the Trusts Act) than in other cases.

5.5. Statutory provisions modifying benamia-Recog,nising, how- ever, the fact that benami transactions have often been resorted to for dishonest purposes, the Legislature has enacted provisions modifying the doctrine of benami. These provisions are to be found principally in the Code of Civil Procedure', and in the Income Tax Act."

5.6. Provisions of a special nature wider than benami.--Then there are provisions of a special nature. Their scope and reach are wider than benarni transfers, but they could apply also to benami. Under a provisions in the Income-Lax Act", income from property trans- ferred to a spouse or minor child' (other than a married daughter') without consideration is deemed to be the income of the transferor. The scope of this is wider than benami transfers.

(There are also minor provisions' in special laws as to the disclo- sure of benami dealings and the like).

5.7. Unlawful l:ransfers.--A transfer of property for a.n unlawful object is void, by virtue of a speciﬁc provision in the Transfer of Pro- perty Act". Recovery by the transferor of property transferred for an unlawful object is, however, permissible only in certain speciﬁed cases. Under a provision in the Trusts Act,' where the owner of property trans- fers it to another for an illegal purpose, and such purpose is not carried into execution, or the transferor is not as guilty as the transferee or the eﬂect of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee must hold the property for the beneﬁt of the transferor.

5.8. Fraudulent transfers.---There is, in the Transfer of Property Act,' also a provision empowering the Court to set aside transfers in fraud of creditors and transfers in fraud of subsequent tansferees.

These provisions are not conﬁned to benami transfers.

5.8. Civil Procedure Code.---There are also provisions in the Civil Procedure Code.

1. Section 66, Code of Civil Procedure, 1908.

2. Section 218A, Income-tax Act, 1961 inserted by Act 45 of 1972.

3. Section 64, Income--tax Act.

4. Also see para. 513, infra.

5. E3. Sections 247 to 250, Companies Act, 1956.

6. Section 6(h)(2), Transfer of Property Act.

7. Section 84, Trusts Act.

8. Section 53, Transfer of Property Act.

25' 5.9. Criminal liability.----So for as criminal liability is concern- ed, references may be made to the general penal provisions in the Penal Code punishing cheating,' and to the speciﬁc provisions in that Code' which punish certain. fraudulent dealings with and disposition of pro- perty, including fraudulent dealings intended to defeat execution.' These provisions are wide enough to cover fraudulent benami transac- tions, if the other ingredients of the relevant sections are satisﬁed. The relevant provisions' is the section under which a person who dishonest- Iy or fraudulently removes, conceals or delivers to any person, without adequate consideration, any property, intending thereby to prevent, the distribution of that property according to law among his creditors or the creditors of any other person, is punished.

5.10. Position with reference to different types of transiel-s.--A study of the various statutory provisions relevant to the subject will show that the position with reference to the diﬁerent kinds of transfer may vary according as the transfer is-

(1) to a wife or child' {on the one hand) or to a person other than a wife or child;

(2) (3) (4)

for consideration or without consideration; with the intention to transfer title or without such intention, and for an honest purpose or to commit fraud.

5.11. Analysis of position in various sitnatio-ns.----For the sake of convenience, we would, at this stage, like to summarise the position with reference to various situations as follows:--

Transfer in favour of wife or child

(a) Transfer in favour of wife or chiid Governed by section 64, Income-tax

(b) (whether or not with the object of transfering title to the wife or child) without adequate considera-

tion.

Transfer in favour of wife or child for consideration, but forafrau-

dulent purpose and not in good faith.

(C) Transfer in favour of wife or child for consideration, and with genuine object of transfering title to the wife or child.

Act [Also see (g) below]. If No crimi-

nal liability unless the case falls within; sections 415 to 424, Penal Code or section 206-207 of that Code).

Governed by section 6th) (2) and section 58,'Transfer of Property Act.

(Criminal liability if cast: falls within sections 415 to 424, Penal Code or sections 206-207 of that Code), Not covered by any provision. (No criminal liability).

Sections 415, and 417, Penal Code.

Sections 421 to 424, Penal Code.

Sections 206 and 207, Penal Code.

Section 421, Penal Code.

Actually, section 64, Income-tax Act applies to a spouse or minor child other than a married daughter.

E-":"".'-"!"!"

Transfer in favour of persons other than wife or child

(d) (i) Transfer in favour of apcrson Not covered by any provision. (No 0th'-31' than Wifc 01' Child without criminalliabiliiy).

consideration, but with the genuine Object of transfering title and with no fraudulent purpose.

(ii) Transfer in favour of a person Governed by section 281A, Income-tax other than wife or child without Act. [See (g) below]. (No criminal consideration, and without intent liability).

to transfer title, but with no frau-

dulent purpose.

(iii) Transfer in favour of a person Governed by section 6(h) (2) and sec-- other than wife or child without tion 53, Transfer of Property Act consideration, with intent to trans- (Criminal liability if ease falls within for title, but for a. fraudulent pur- sections 415 to 424, Penal Code or pose and not in good faith. ' sections 206-207 of that Code).

(iv) Transfer in favour of a person Governed by section 281A, Incon1e--tax other than wife or child without Act. [See (g) below]. Also section consideration, without intent to 6(h) (2) and section 59, Transfer of transfer title and for fraudulent Proplrty Act. (Criminal liability if purpose. case falls within sections 415 to 424 Penal Code or sections 206-207 of that Code).

(e) Transfer in favour of person other Governed by section 6(h)(g) and sec- than wife or child for considera- tion 53, Transfer of property Act. tion, with intent to transfer title. (Criminal liability if case falls within but for afraudulent purpose and sections 415 to 424, Penal Code or not in good faith. sections 206-207 of that Cede).

(f) fransfer in favour of person other Not covered by any provision. than wife or child with considera-

tion, but with genuine object of transferring ownership and with no fraudulent intent.

General .

) Transferin favour of any person Object _of checking tax evasion sub- benami (i. e. without consideration stanually achieved by barring a. suit and with no genuine intent to instituted without informing the transfer). taxing authorities. See section 231A, Income-tax Act (inserted by Act 45 of 1972).

5.12. IlIustrations.--A few illustrations will be useful.'

(i) A becomes heavily indebted to B who is expected to attach his property for the satisfacuon of his debt. To screen it from B. A transfers some of it to C. The transfer is void."

1. Some of the illustrations are taken from Gour, Hindu Code' (1935. page 728, para. 220.

2. Section 53, Transfer of Property Act.

(ii) 27 A has innocently transferred his property to B who holds it for A, but getting involved in heavy losses, B compromises with his creditor G to 'whom he transfers the property X in satisfaction of his debt. A sues to eject C on the strength of his real title. C claims to be a bona ﬁde purchaser from B without notice of N5 title. A cannot eject C.'-".

5.13..Qnestion of evasion of tax considered.--As regards evasion of tax by benatni transactions, the position is brieﬂy this----

'(i)

(ii) Where the real owner of the property is the husband or father and the benamidar is his wife or minor child (other than a married daughter). the general' provision as to income from assets transferred directly or indirectly without adequate con- sideration by the husband or father would appear to be ade- quate for all practical purposes. ' Where the real owner -is not the husband or father, the provi- sion recently inserted in the Income Tax Act' has the eﬁect of securing that" the benami transaction is disclosed to the Income Tax authorities. There does not, therefore, appear to be any serious gap so as to require further radical mea- sures for checking evasion of direct taxes resulting from benami tansactions.

4. Section 41, Transfer of Property Act.

As to public policy, see Shea Narayarz V. More Prasrtd, I.L.R. 27 A1133. Section 64, Income Tax Act, 1961.

Section 281A, Income Tax Act, 1961.

3-4 LADc'N.D.)1'73 _ cnpnvrnn 5 AMENDMENTS at run LAW 6.1. Inti-otlnction.---Having dealt with the present position, we propose in this Chapter to consider the amendments needed in the law.

6.2. It would appear that the various statutory provisions that have been enacted so far achieve the objects of checking tax evasion' and checking frauds on private creditors". If these provisions do not suc- ceed, that may be mainly due to reasons other than defects in the law.

6.3. Possible alternative for regulating transaction.- Several possible alternatives could be thought of, with reference to pro- hibiting or regulating benami transactions for avoiding prejudice to private individuals or minimising litigation:---

(i) Entering into a Benarni transactions could be "made an oﬁence;

(ii) A_provision may be enacted to the effect thatin a civil suit a right shall not be enforced agaitm the benamidar or against a third person, by or on behalf of the person claiming to be the real owner of the property on the ground of benami; a similar provision could be made to bar degfences on the ground of benami.

(This provision would be based on the principle on which the existing provisions in the Civil Procedure Code and the new provision in the Income-tax Act are based, but could be wider in scope and more radical). -

(iii) The present presumption of a resulting trust' in favour of the person who provided the consideration may be displaced (as in England) by the presumption of advancement, in cases where the person to whom property is transferred is a near relative' of the person who provided the consideration. (This would bring in the doctrine of advancement, so as to rebut the presumption of resulting trust under section 82 of the Trusts Act).

Whichever alternative is adopted, it may be desirable to make an exception for an acquisition made by the manager of a joint Hindu family in the name of one of the co-parceners, and similar cases.

1. As to tax evasion, see Chapter 5. para. 5.2, supra.

2. Chapter 4, supra.

3. Section 82, Trusts Act.

4. The expression 'near relative' could be suitably deﬁned.

23 29

6.4. Questiosmah-e.---'l'he Commission. in its questionnaire issued on the subject, invited views on the following questions:---

QUESTIONS (1)' Whether, in order to check the evasion of direct taxes or other types of dishonest acts. it is necessary to prohibit benami transactions in toto or to regulate them by more stringent provisions than have been enacted so far (2) If so, which of the alternatives' mentioned above should be adopted?

(3) If the alternatives mentioned above are not considered adequate or feasible. what other amendments in the law should be made with reference to benami transactions ?

6.5. The questionnaire was circulated to State Governments, High Courts, Bar Associations, Chambers of Commerce and other interested persons and bodies. .

6.6. Views as to ﬁrst altemative.--The first alternative has receiv- ed the support of one High Court,' two Judges of another High Court,' two Judges of one more High Court.' some Judges of another High Court' and one State Government.' 6.7. Those who favour the ﬁrst a1ternative--i.e. the imposition of a prohibition (in the sense of making the entering into benami transac- tions an of'r'ence)---. regard benami transactions as outmoded, or state that there is no place in modern times for such transactions, or state that there can hardly be a legitimate motive for such transactions. This group is, in number, smaller than the group which favours the second alternative or the third alternative.

6.8. The first alternative has. however, been opposed by the majo- rity of the comments on various grounds. It has been stated that benami transactions are entered into for honest motives also, and not necessarily with the intention of evading taxes or defeating the-claims of third parties. Secondly, it is stated that this is a deep rooted habit, and ought not to be prohibited by law, but restrictions may be imposed, wherever necessary.' Thirdly, it has been emphasised that the prohibi- tion may be difﬁcult to enforce, as a benami transaction will not ordi- narily co-me to light. Lastly, the view has been expressed that the pro- visions so far enacted' are adequate to check the evasion of taxes or defeating theclaims of third parties. ' 6.9 Thus. a retired High Court J udge' has stated as follows: --

"However strongly one may disparage benami transactions from the above two points of view, there will be always need to Thcleﬁe alitjernatives were the same as those mentioned in para 6.3 sLtpr--a.

D. .

No. 42.

.No. 43.

No. 48.

I130. (No other lesser provision will have any effect, it is stated).

0. .

:'~'9*."':'-'*5-*'!\':"

provide for situations where one person advances money for a transaction taken in the name of another with a genuine intention to beneﬁt the latter'.'' After noting that a fresh look is necessary from the point of view of (i) vexatious litigations,

(ii) tax-evasions, he suggests. "Such transactions should be allowed to prevail, and not barred in toto. If-the operating motive is tainted by fraud, only then should legislation ban them."

6.10. A High Court Judge" has emphasised that bcnami transac- tions "have been prevalent in the country for a very long period, and it will be difficult to check these by legislation, so long "as one person will enjoy the conﬁdence of another". In spite of legislation benami transactions may continue, and the benamidar may execute a deed in favour of the real owner subsequently at an'opportune time."

6.11. Another High Court Judge," while noting that it is desirable to prohibit such transactions completely, has added it may not be pos-

sible to do so through legislation, "and more so where the real and the ostensible owner would combine against the law." He, therefore, thinks that "the law should go only that far where it would be effective. Only such legislation be made as may regulate the transaction and make it unremunerative for the ostensible owner to agree to act as the shield. The provisions should be such as may bring all benami tran- sactions on the surface."

6.12. Views as to second nltemaﬁvee.-----0ne High Court Judge has stated' that the second alternative will help the ostensible transactions. and not the revenue. Government will not be able to proceed against t_he)property. (He, however, is unable to suggest any other alterna- IVC .

6.13. Several persons and bodies have preferred the second alter- native. To this category, for example, belong one High Coturt," some Judges of one High Court,' one Judge of another High Court,' two Judges of another High Court," one Judge of yet another High Court?' one High Court Bar Association, 1", and the Legal Remernbrancer of a Union Territory,"-" and two State Government."

Emphasis supplied, . No. 30. ' No. 30.

No. 43.

No. 38.

No. 30.

No. 39.

No. 43.

No. 47.

. No. 35 (Jabalpur High Court Bar Association.) Also S, No. 16 (Kanpur Bar Association).

11. S. No. 22 (Legal Remembrancer_ Chandigarh).

12. The above list is illustrative only.

13. S.'No. 53 and S. No." 21.

Ewwsowewwr wwwwmmmmm 31 It may, however, be mentioned that one of the High Courts' has "emphasised that only benami -transactions which contain an element of dishonesty or fraud, should be prohibited.

6.14. The Legal Remembrancer of a Union Territory, who favours, the second alternative, has added" these comments. "The only excep- tions thereto may be made in the case of acquisitions made by a karta of the joint Hindu family for himself and the members of the joint Hindu family, by a guardian' for the minor (if the minor is having a source of income) and by the trustee for the beneﬁciary of the trust."

6.15. Views as to third alternatiw-..------Another group of replies"

favours the third alternative. Some of the replies in this group do not give detailed reasons but it would appear that so far as the question of evasion of taxes is concerned, they would regard the existing posi- tion as more than adequate.

Some of them favour' both the second and the third alternatives.

6.16. Views for maintaining present posit1'on.--A considerable number of persons' have expressed the view that the existing law is ade- quate enough, and an amendment or further addition is not required.

6.17. One High Court Judge has stated ' tha-t it is enough if the provisions of certain sections of the Indian Trusts Act (sections 1, 82 and 96 are the important amongst them), are borne in mind and made applicable to persons of all communities.

6.18. Altennafive consider-ed.--I-Iaving discussed the present posi- tion and the trends of Views expressed on the subject, we shall now proceed. to indicate our own conclusion.

6.19. General Observations. A few general observations may be in order, before the merits of the various possible alternatives are stated.

I

2. S. No. 22.

3. (a) S. No. 13.

(h) S. No. 37 (Bar Association, Dhulia).

(c) S. No. 46.

(d) S. No. 52.

(6) S. No. 54 (District Bar Association, Alipore).

in s. No. 39.

4.(a} S. No. 30.

(la) S. No. 33 (Southern Gujarat Chamber of Commerce).

5. E.g. (D S. No. 44.

(ii) S. No. 43.

(iii) S. No. 4! (Punjab & I-Iaryana Chamber of Commerce).

(iv) S. No. 23 (Bar Association, Banltura).

(V) S. No. 13.

(vi) 3. No. 46. *'

(vii) S, No. 40 (Bar Association, Silchar).

6. S. No. 47.

At the outset, it may be stated that one of the important causes' which accounted for the origin of benami transactions has now" ceased to exist. Thus, the importance of the joint Hindu (Mitakshara) Family has -been reduced, after the enactment of the Hindu Succession Act. The joint family, in the strict sense of the co-parcenary, hardly existed among the Hindus governed by the Dayabhaga.

Experience shows that benanii transactions are a highly fruitful source of bitter litigation: Benami transactions also lead to a'criinony. Thus, when a benami transaction. is resorted to for defrauding credi- tors, the true owner may be guided by the consideration that if the property can be saved from the clutches of the creditor, that by itself would be a gain. even if the benamidar, being the son" or' any other near relative, may ultimately succeed in effectively keeping the pro- perty as his own property. This leads to acrimony among the parties concerned when a controversy arises.

_There is, therefore, a case for refusing legal recognition to the benarni character of such transactions.

6.20. Object of checking evasion of taxes already achieved'.--It may be noted that the object of checking evasion of taxes has' been sub- stantially achieved by the recent amendment" of the Income-tax Act,' _ It may also be noted that transferees of property for value without notice are protected even now.' What remains now is the question of minimising litigation arising by reason of factual controversiesf 6.21. Objective of avoidance of litigation.-----There is also no doubt that as regards avoiding litigation, a more direct approach is needed. In this connection, we may refer to a Bombay judgment," where it was stated as fol1ows:-- c "It may be observed that in the modern society the present system which ties up the property and permits frauds to be committed has no place. If the Legislature has made great inroads in the matter of per- sonal life of the people, we do not see Why it cannot now change the joint family property law. Moreover, the law permitting and recognising benami transactions reriilts in a lot of wcivtefitl litigation and enables all sorts of frauds to be committed. Day in and day out, after years of tran- sactions, suits are raised challenging the alienations of a father as being not for legal necessity ............. .: Similarly, if a transaction' is comple- ted and money received, someone raises his head and says he is the

1. para. "Ea.

2. Section 281A, Income-tax Act, 1961, as inserted by the 'I'ai.ation Laws Amendment Act, 197] (45 of 1972).

See summary of the position (para 5.11 and 5.13 supra). Sections 95, 96, Trusts Act.

cf. Chapter 5, supra.

Harman Gani Ahmed Sahib 1:. Vidhcrdhar Krishriarao Mung (Appeal No. 533 of 1968 from original decree, decided on 1'1--1-1969 by Patel and Wagle .TJ'.), _ 4 .°"E-'l.4'~S-*-' .--.s 33 owner and often notice of such title is even falsely alleged. is it now time that this branch of the law was reformed This will reduce much wasteful litigation, and the Courts will be able to do better and more rruitful work."

. 6.22. Tests for deciding whether" a transactions is benami.--1t may, in this connection, be pointed out that in determining whether a transaction is benami, several factors, such as, motive, source of con- sideration, possession of the property and its enjoyment, and custody of title deeds, are the features whose effect, either severally or cumu- latively. has to be considered.

,:- (1.23. Vario-us alternatives oonsidcred.----ln the light of the above observations, we proceed to consider the various alternatives.

6.24. First alternative not likely to be eifectiver-----The ﬁrst alterna- tive referred to above, namely, the imposition of a criminal prohibition against benami transactions, is-the most drastic alternative, but it is not likely to be more effective than the others. A prohibition backed by crim1'n_al sanctions would not, moreover, be desirable, unless the mens rec': is also included in the provision to be enacted. ' If this alternative is to be adopted, a provision could be enacted on the following lines:--' "Where property is transferred to one person for a considera- tion paid or provided by another person, and itappearg that such person did not intend to pay or provide such considera-_ '_ ' _' tion for the beneﬁt of the transferee, the person paying or ' providing the consideration shall be guilty of an offence puni- shable with imprisonment upto three years, or with ﬁne, or Provided that this section shall not apply where the transferee is aco-parcener in a Hindu undivided family in which such _ other person is also a co-parcener, and it is proved that such other person intended to pay or provide such consideration for the beneﬁt of the co--parceners in" thefamily.

Excepzion.~Nothing in this section shall be deemed to . affect section 66 of the Code of C ivii Procedure, 1908 or any ' = provision similar thereto."

~' Ye.t';anot-her" device for giving effect to the first alternative, with a requirement of mens rea, would be to have a law on the following lines:

"Where-property is transferred to one person for a considera-

3 tionpaid or provided by another person, and it appears that such person did notrintend to pay or provide such considera- tion for the beneﬁt of the transferee, the person paying: or pro- viding the consideration shall, I. A separatenlavviwiligmnecded.

if he has caused the transfer to be entered into with the inten- tion of facilitating the evasion of any law, or defeating the claims of his creditors, or the creditors of any other person be guilty of an oﬂence punishable with imprisonment upto three years, or with ﬁne, or with both."

Yet another device to give effect to the ﬁrst alternative would be to add a section in the Indian Penal Code as fo1lows':---

"421A. Whoever, dishonestly or fraudulently causes to be transferred to any person, any property, for which transfer he has paid or provided the consideration, intending thereby to prevent, or knowing to be likely that he will thereby prevent, the distribution of that property according to law among his creditors or the creditors of any other person, or intending thereby to facilitate, or knowing it to be likely that he will thereby facilitate, the evasion of any law, shall be punished with imprisonment of either description for a term which may extend to two years, or with ﬁne. or with hot ."

6.25. Second altemative.--The second alternative is less drastic than. the ﬁrst. In form. it could follow the existing statutory provision limiting the judicial recognition of benami transactions, such as, sec- tion 66. Code of Civil Procedure, 1908. But its scope would be much wider. The provision' could be to the effect that no suit shall lie to enforce a right in respect of any property held benami, either against the person in whose name 'the property is held or against any other per- son, by or on behalf of a person who claims to be the real owner 'of the property on the ground that the person in whose name the property is held is a benamidar of the claimant. (If necessary, a defence can also be barred).

6.26. Third alternative.---The third is the least drastic alternative, and would make the matter depend on the intention of the parties,-- with the qualiﬁcation that a speciﬁc provision requiring the court to draw a rebuttable presumption of advancement in the case of near re- latives will be introduced. The practical advantage of such a provision will be its elasticity.

Section 82, Trusts Act could be revised on the following lines':--

"Where property is transferred to one person for a considera- tion paid or provided by another person-, and it appears that such person did not intend to pay or provide such considera- tion for the beneﬁt of the transferee, the transferee must hold the property for the beneﬁt of the person paying or providing the consideration:

Provided that the fact that the transferee is a near relative of such other person shall not, of itself, be regarded as a sulﬁ-

' 1. This {Ina be i..;;;1;.3" as Section 421A in the Indian Penal Code.

2. This is not a draft.

3. This is only a very rough draft.

cient ground for drawing an inference that such other person did not intend to pay or provide such consideration for the beneﬁt of the transferee,' and in such cases the court sl1a.l presume that such other person intended to pay or provide such consideration for the beneﬁt of the transferee."

6.27. Second alternative refusal to recognise Benami preferred.--- In our opinion, the simplest alternative would be the second alterna- tive. The law should refuse to- recognise the Bennmi character of tran- sactions, without making them an offence. The law should, in effect, provide that where property is transferred benami. the benamidar will become the real owner. The result of such a povision will be that the fact that the benamidar did not provide the consideration, or that the consideration was provided by a third person, will not be a ground for recognising a person other than the benamidar as owner. T 0 put the matter in broad terms, the doctrine of benami will, under the pro- posed amendment, cease to be a part of the Indian law.

It may be observed that in enacting the proposed provision, the legislature will carry, to its logical conclusion, the trend illustrated by provisions, such as, section 66 of the Code of Civil Procedure. The section in the Code is applicable to involuntary alienations, while the proposed provision will extend the same principle to voluntary trans- crs as We]l.;

We think that this will be the simplest and most effective course, and is, therefore, preferable to others. ' The amendment will bring out a change in the legal position in some of the situations" where, at present, the benami character is re- cognised.

6.27A. We are also of the view that it is not necessary to enact a prohibition attracting criminal penalties----which is the course sug- gested in the ﬁrst alternative. Such a prohibition will have to be ac- companied by a requirement of mens rea, thus narrowing down its scope and limiting its practical utility.

6.28. Exception recommended ior centain cast-.s.--While enacting the provision which we have recommended,' it would be desirable to make exceptions in the case of acquisition made by a karta -for himself and the members of the joint Hindu family, or by the trustees for the beneﬁciary of the trust and similar situations. In the case of a joint Hindu family, the ordinary situation arising in this connection would be where the property stands in the name of the manager or member, but actually belongs to the whole family. Here the member in whose. name the property is held is himself a beneﬁciary. In the case of a trustee,

1. Exception for co-parceners etc, could be made.

2. Para. 5.11, categories (a) and (b) if there is no intent to transfer title, and categories (d)(ii) and (d)(iv).

3. Para. 6.27, supra.

the property would ordinarily stand in the name of the trustee, who is not beneﬁcially entitled. The two situations are, thus, diﬂferent; but the reason for making a combined exception for the two situations (and other similar situations) is the common one, arising from the fact that the section which we propose will bar a suit to enofrce :1 right on the ground that the person in whose name the property'is held, is not the real owner. In the situations to which we have referred, it is obvio-usly desirable that this new 5601:1011. if applied literally, would create a result which is the opposite of what is intended by the legal position as under- stood at present. Hence the need for an exception.

6.29. Exception her past tiransactions.---It is also necessary to make an exception for past transactions. The provision which we pro- pose will be procedural in form, but will be substantive in its true character. 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, name- ly, that the real owner can always enforce his rights against th.e benami- dar. This position is now proposed to be reversed, and the reversal should not work in a manner which will defeat the intention of the parties who acted under the old law. Of course, those benami transac- tions which have been entered into with the object of carrying; out frau- dulent or illegal motives, and which therefore, fall within speciﬁc pro- visions enacted by the Legislature to prevent the abuse of the practice of benami', are governed by those speciﬁc provisions, and the bar against retrospective operation o-f the new provision will not affect the opera-

tion of those speciﬁc provisions.

6.30. Repeal of certain p1vavisions.--As a consequence of our re- commendation to abolish the doctrine of benami, section 32_of the Trust Act, section 281A of the Income-tax Act and section 66 of the Code of Civil Procedure, will become unnecessary and we, therefore, recommend that they should be repealed.

As regards provisions like section 53 of the Transfer of Property Act or section 64 of the Income-tax Act, their scope is much wider than benami transactions. These provisions could be pressed into service even in cases not falling within the doctrine of benami. For example, section 64 of the Income-tax Act applies even where the transfer to the spouse of the assets concerned is genuine, provided the transfer is not for adequate consideration or in connection with an agreement to live apart. We do not, therefore, think that they require any change in con- sequence of the new section which we are recommending.

6.3OA. Saving for s. 53, T.P. Act or for transfers for an illegal pur- pose.»-It may, of course, be necessary to introduce a saving for section 53 of the Transfer of Property Act, so that the fact that the real owner is to be debarred from enforcing his right against the benamidar (which is, in substance, the gist of I. See Chapter 4 supra.

I 37 the proposed provision), should not be understood as standing in the way of setting aside a transfer by the real owner to the bcnami- dar, if the transfer was made with intent to defeat or delay the creditors of the transferer and is thus attracted by secion 53.

For similar reasons, it will be necessary to save the law relating to transfers for an illegal purpose} 6.31 Constitutional aspect of proposed provision.----In the course of our consideration of this question, we had occasion to examine a small constitutional issue, namely, whether the proposed provision pro~ hibiting the real owner from ﬁling a suit to enforce his right against the benamidar would conflict with the provision in Article 19l1)(f) of the Constitution. Under that article. all citizens have the right to ac- quire, hold and dispose of property. We have come to the conclusion that the proposed section will not be hit by that clause. In this con- nection, we may point out that Article 19(5) saves a law imposing rea- sonable restrictions on the exercise of any of the rights conferred by sub-clauses (d), tel and (f) of clause (1), if the restrictions are in the interest of the general public.

6.32. Public interest requires that unnecessary litigation should be avoided; and if the law enacts provisions designed to achieve such ob- ject, it does not hinder the public interest. It advances it. The time of the citizens and of the agencies charged with the administration of iustice should be devoted to more fruitful tasks than to the decision of questions arising by reason o-f the mere use of the name of a person who is not intended to be the owner of the property held in his name. if there is no compelling oonsideration for such use of the name of another person, we do not see any reason why such a practice should not be restricted. For these reasons, the restriction should be regarded as reasonable Within the meaning of article 19(5).

6.33. I-lecornrncntlaflion. In the light of the above discussion, we recommend the enactment of a separate law containing the following legislative provisions :--

"ltll No suit 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 be instituted in any court by or on behalf of a person' claiming to be the real owner of such property.

(2) In any suit, no defence based on any right in respect of any property held benarmi, whether against the person in whose name the property is held or against any other person. shall be allowed in any court by or on behalf of a person claiming to be the real owner of such property.

l.Wt~lection 6. (l)l(2). Transferwof ProperlyWAct,iand Section 48, Trusts Act.

(3) Nothing in 'this section shall apply--

(a) whether the person in whose name the property is held is a manager of. or a co-parcener in, a Hindu un- divided family, and the property is held for the beneﬁt of the co-parceners in the family, or

(b) where the person in whose name the property is held is a trustee or other person standing in a ﬁduciary capa- city, and the property is held for the beneﬁt of another person for whom he is a- trustee or towards whom he stands in such capacity.

2. The following provisions are hereby repealed, namely,- (a-) section 82 of the Indian Trusts Act, 1882;

(b) section 66 of the Code of Civil Procedure, i908;

3. Nothing in this Act shall-

(a) affect the provisions of section 53 of the Transfer of }'roperty Act, 1882, or the law relating to transfers for an illegal purpose, or (H) apply in relation to any property held benami at the commencement of this Act."

This Report has not been signed by Mr. Justice V. R. Krishna lyer. When the draft of the-Report was fully discussed and approved by the Commission. Mr. Justice lyer was a- Member of the Law Commission and participated in the discussions. However, before the Report, as ﬁna- lised and approved, could be typed for the signatures of the Members of the Commission, Mr. Justice lyer left the Commission to join the Sup- reme Court. He has authorised us to state that he fully agrees with the approach and recommendations of the Report.

We desire to place on record our warm appreciation of the valuable assistance to have received from Mr. Bakshi, Member-Secretary of the Commission, in the preparation of this Report. At all stages of the study of this problem, Mr. Bakshi took an active part in our deliberations.

P. B. Gajendragadkar Chm':-man P. K. Tripathi Member-

S. S. Dhavan Member

9. P. Sen-Vanna Member P. M. Bakshi Member-Secretary T DATED : NEW DELHI.

the 7th August, 1973.

GIPN -5 7-1 L.A.D.(ND)}73--6-J2-7 3--2.000.

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