Delhi High Court
Peeyush Aggarwal vs Sanjeev Bhavnani on 4 July, 2013
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 4th July, 2013
+ CS(OS) 1026/2010
PEEYUSH AGGARWAL ..... Plaintiff
Through: Mr. Sachin Chopra with Mr.
Sarvpreet S. Chawla & Mr. Anuj
Tyagi, Advs.
Versus
SANJEEV BHAVNANI .....Defendant
Through: Mr. N. Kumar with Ms. Shelly
Dutta, Advs.
Mr. Kamal Bansal, Adv. for D-
2&3.
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
RAJIV SAHAI ENDLAW, J
1.The plaintiff claims:
(i) that M/s Visesh Infotecnics Ltd. (VIL) is a public limited company;
(ii) that the defendant was a Joint Managing Director of the said company holding about 11,000 shares in his name;
(iii) that in the year 2004, the plaintiff purchased the majority shares in the said company and took over the management thereof CS(OS) No.1026/2010 Page 1 of 30 from the erstwhile management and assumed the position of chairman of the said company;
(iv) that the plaintiff, for the sake of continuity, allowed the defendant to continue with the company and gave him the position of Managing Director in the company making him the senior most official of the company;
(v) that the plaintiff was also in management of another company viz. MPS Technosoft Ltd. (MPS);
(vi) that the defendant by virtue of being the Managing Director in VIL also started advising the plaintiff about the affairs of MPS and suggested various expansion plans / new business ventures for VIL as well as MPS;
(vii) that in April, 2004, the defendant represented to the plaintiff that he was facing difficulties in convincing investors and clients that he was stable in MPS and VIL as the investors and clients wanted assurance that he was stably stationed with MPS and VIL; the defendant thus suggested that some of the shares of MPS be parked in his name and also represented that it was a common market practice to keep part of shareholding with CS(OS) No.1026/2010 Page 2 of 30 senior officials of the company and that the same would make it easier for him to convince the clients / investors and impress them with his abilities and skills about his stability in MPS and VIL and help in bringing new business to MPS and VIL;
(viii) that on such representations of the defendant, the plaintiff agreed to park / keep-in-trust shares of MPS with the defendant and on 27.04.2004 transferred part of his equity in MPS being 31,97,150 shares of MPS in the name of the defendant; it was decided that the said shares would be parked with the defendant in-trust / as custodian and that the defendant would return the same to the plaintiff whenever the plaintiff will demand the same or in the event of disassociation of the defendant from MPS or VIL;
(ix) that of the aforesaid 31,97,150 shares so transferred to the defendant, 9,97,150 shares were transferred from the holdings of the plaintiff through Omkam Developers Pvt. Ltd. (Omkam) and 22,00,000 shares were transferred from the holding of the plaintiff through BGR Finvest Pvt. Ltd. (BGR);
CS(OS) No.1026/2010 Page 3 of 30
(x) that the aforesaid transfer of shares was subsequently brought to the notice of the Board of Directors of MPS as it was mandatory to inform the Board of Directors of MPS as to why no stamp duty was being paid on the transfer; as the shares were only being parked with the defendant in-trust / as custodian, no consideration was paid to the plaintiff;
(xi) that thereafter, on the suggestion of the defendant and after complying with the formalities, in or about July, 2005 MPS was merged with VIL and the defendant was issued 23,97,863 shares of VIL against the aforesaid 31,97,150 shares of MPS which were in his name, though under the arrangement aforesaid;
(xii) that on 07.11.2005, the defendant gave an interest free loan of Rs.34,50,000/- to VIL;
(xiii) that VIL on 18.02.2006 issued dividend @10% and accordingly dividend of Rs.23,97,863/- was issued with respect to the shares aforesaid in the name of the defendant, in the name of the defendant; however since the defendant had no right thereto, it CS(OS) No.1026/2010 Page 4 of 30 was decided that the defendant would deposit the same sum amount of Rs.23,97,863/- with VIL (Para No.17);
(xiv) that the defendant thus became liable to pay Rs.23,97,863/- to the plaintiff as the dividend had been issued on the shares that were property of the plaintiff (Para No.18);
(xv) that the defendant however failed to do so and ultimately on much persuasion vide cheque dated 17.05.2006 transferred a small part of the dividend amount of Rs.5,50,000/- leaving a balance of Rs.18,47,863/-;
(xvi) that the defendant thereafter suggested that the loan of Rs.34,50,000/- given by him to VIL could be squared off against the said dividend, with VIL paying the balance of Rs.16,02,137/- to the defendant and which was agreed to by the plaintiff;
(xvii) that all the transactions aforesaid were oral; (xviii) that VIL accordingly vide cheque dated 28.03.2007 paid a sum of Rs.16,50,000/- to the defendant in full and final settlement of the loan given by the defendant; however on the asking of the defendant, the said cheque was issued in the name of Mr. Anil CS(OS) No.1026/2010 Page 5 of 30 Chuttani from whom the defendant claimed to have arranged the loan;
(xix) that several projects initiated by the defendant resulted in huge and continuous loss to the plaintiff and the relationship between the defendant and the plaintiff soured; VIL had to procure further loans so that the projects initiated by the defendant did not fail for want of funds; the defendant represented to the plaintiff that he could arrange loan against the security of shares of VIL from one Mr. Rajinder Singh Negi;
(xx) that accordingly 30,00,000 shares were transferred to Mr. Rajinder Singh Negi or his companies and of which 10,00,000 shares were the shares out of the 23,97,863 lying in-trust with defendant; as such between July, 2007 and November, 2007, 30,00,000 shares were transferred to Mr. Rajinder Singh Negi or his companies including 10,00,000 shares in-trust in the name of the defendant; this also indicates that the defendant had no right over the said shares;
(xxi) that thereafter disputes and differences arose between the plaintiff and the defendant and the defendant from January, CS(OS) No.1026/2010 Page 6 of 30 2009 became irregular in attending the office of VIL and on
02.01.2009 the plaintiff received an e-mail from the defendant in which the defendant claimed that he had resigned from the position of MD/CEO since 24.07.2008;
(xxii) that the plaintiff subsequently discovered that the defendant and the said Sh. Rajinder Singh Negi were trying to take over VIL and were manipulating the ownership of shares;
(xxiii) that the plaintiff also learnt of possible involvement of the defendant in siphoning of GDR funds;
(xxiv) that the defendant in or about April, 2010 also served a notice of winding up to VIL with respect to the loan of Rs.40,00,000/- aforesaid;
(xxv) that in April, 2010 an Annual General Meeting (AGM) of VIL was convened and notice thereof was also issued to the defendant as he was registered as shareholder in the records; and, (xxvi) that the defendant at this stage wanted the plaintiff to remove his name from the criminal complaints qua siphoning of GDR funds and to which the plaintiff did not agree.
CS(OS) No.1026/2010 Page 7 of 30
2. On the aforesaid pleas, the plaintiff has instituted the present suit:
(I) for declaration declaring that the plaintiff is the owner of 13,97,150 shares of VIL presently in the custody and name of the defendant;
(II) for permanent injunction restraining the defendant from dealing with the said shares; and, (III) for mandatory injunction directing the defendant to transfer the said 13,97,150 shares in favour of the plaintiff.
3. The defendant being on caveat appeared on 25.05.2010 when the suit came up for hearing and accepted notice of the suit and gave a statement not to transfer the shares till the next date of hearing. However vide order dated 26.08.2010, the defendant was ordered to be bound by the said statement till further orders; the said order continues and an application of the defendant under Order 39 Rule 4 of the CPC is pending.
4. The defendant inter alia filed IA No.8673/2010 under Order 7 Rule 11 CPC for rejection of the plaint inter alia on the ground that Omkam and BGR which had transferred the shares in the name of the defendant had not CS(OS) No.1026/2010 Page 8 of 30 been impleaded as parties and the claim if any as made in the suit could be of Omkam and BGR only and not of the plaintiff and secondly on the ground that the suit claim was barred by limitation. It was pleaded that the shares were transferred to the defendant on 27.04.2004 and the declaration with respect thereto could be made within three years thereof only as provided under Article 58 of the Schedule to the Limitation Act.
5. Vide order dated 19.01.2011, on the oral request of the counsel for the plaintiff and in the light of the objection aforesaid of the defendant, Omkam and BGR were found to be appropriate parties to the suit and impleaded as defendants no.2 and 3 and an amended plaint filed.
6. Though with the aforesaid, the main ground on which the application under Order 7 Rule 11 CPC had been filed disappeared but the same remained pending and arguments thereon were addressed and heard on 19.02.2013. During the hearing, it prima facie appeared that the claim in suit was hit by the Benami Transactions (Prohibition) Act, 1988. However on the plea of the counsel for the plaintiff that the defendant had not sought rejection of the plaint on this ground and he was as such not prepared to address on the said aspect, opportunity in this regard was granted and after hearing counsels on this aspect also orders were reserved. CS(OS) No.1026/2010 Page 9 of 30
7. Though for consideration of the aspect of maintainability of the suit and / or under Order 7 Rule 11 of the CPC, there is no need to notice the defence but for the sake of completeness, it is deemed proper to also record in brief here the defence of the defendant. It is the plea of the defendant; (i) that the present suit is a counter blast to the notice of winding up got issued by him for recovery of the loan amount from VIL; (ii) that this is evident from the fact that even though the defendant has been dis-associated from VIL since 24.07.2008 but no demand with respect to the said shares was made for about two years and has been made only after he issued the notice of winding up; (iii) that whenever shares are held in-trust, the provisions of the Companies Act require declaration to be filed by the trustee as well as the beneficiary and the company is also required to disclose the said fact to the office of the Registrar of Companies but nothing of this sort was done in the present case; (iv) that the shares were transferred in the name of the defendant against lawful consideration and not in trust; (v) that the aforesaid shares of MPS were transferred to the defendant in consideration and exchange of his transferring 8,19,652 shares of Infotecnics India Ltd. (IIL) in favour of the plaintif; (vi) that the defendant was part and parcel of the promoter group of VIL by virtue of merger of business and assets of IIL CS(OS) No.1026/2010 Page 10 of 30 under the control of the defendant, vide Memo of Understanding / Agreement dated 25.06.2002; (vii) that VIL was originally incorporated in the name of M/s Ultimate Software Pvt. Ltd. and its name was changed to the present name of VIL consequent upon acquisition of business assets and properties of the defendant‟s company IIL; (viii) that the transfer of shares of MPS in the name of the defendant was in lieu of the transfer of business of ILL to VIL and so as to ensure allotment of shares of VIL to the defendant by merger of MPS with VIL; and, (ix) that both the payments of Rs.34,50,000/- as well as Rs.5,50,000/- by defendant to VIL were towards loan.
8. The plaintiff has filed a replication to the written statement aforesaid but to which, for the present purpose, it is not necessary to advert to.
9. As far as the plea of the defendant seeking rejection of the plaint on the ground of claim in suit being barred by limitation is concerned, the case set up by the plaintiff in the plaint is of the cause of action having accrued to him within three years prior to the institution of the suit on the defendant on 24.07.2008 resigning from VIL and the plaintiff terminating the services of the defendant on 02.09.2009 and whereupon the defendant was under
obligation to return the shares. The counsel for the defendant has been CS(OS) No.1026/2010 Page 11 of 30 unable to demonstrate as to how the suit would be barred by time. Even otherwise no merit is found in the aforesaid plea.
10. As far as the bar to the maintainability of the suit on the basis of Benami Act is concerned, the counsel for the plaintiff has argued:
(i) that for a transaction to be benami, requires three parties i.e. a transferor, an ostensible transferee and a real transferee from whom the consideration flows to the transferor;
(ii) that the transaction of transfer of shares in the present case is bilateral and not tripartite, with the transfer being from Omkam and BGR to the defendant;
(iii) that for a transfer to be benami, there has to be a flow of consideration which is also lacking in the present case.
Attention is invited to Minutes of the Meeting of the Board of Directors of MPS held on 27.04.2004 (MoM) according consent to the transfer of shares by Omkam and BGR to the defendant and also recording the transfer to be in-trust with the shares being returnable on demand and the shares being so registered in the name of the defendant without payment of stamp duty on transfer as the same was without consideration CS(OS) No.1026/2010 Page 12 of 30 and the beneficial interest in the shares to remain in the plaintiff only. The said MoM also records that the Omkam and BGR had sold the said shares to the plaintiff under blank transfer;
(iv) Reference is made to:
(I) Section 88 of the Indian Trust Act, 1882;
(II) Ouseph Chacko Vs. Raman Nair Raghavan Nair AIR 1989 Kerala 317 laying down that where there is no transfer of property as in a sham document and when there is no consideration for transaction, the bar of benami does not apply;
(III) Smt. Meeradevi @ Sheela Gajanan Jagtap Vs. Chandramohan Dattajirao Jadhav AIR 1995 Bombay 47 laying down that nominal transaction is not covered by Benami Act;
(IV) Sh. Mahinder Singh Vs. Mr. Pardaman Singh AIR 1992 Delhi 357 laying down that burden of proof lies on a person who asserts benami and mere assertion that the property was purchased benami is not sufficient to dismiss the suit at a preliminary stage;
CS(OS) No.1026/2010 Page 13 of 30 (V) Bhargavy P. Sumathykutty Vs. Janaki Sathyabhama AIR 1995 Kerala 42 (FB) enunciating the difference between benami transaction and a sham transaction; and, (VI) Canbank Financial Services Ltd. Vs. Custodian (2004) 8 SCC 355 also laying down that in a transfer involving benami transaction three parties are involved.
11. The counsel for the defendant has been unable to argue anything except reiterating the defence in the written statement but which is on merits. It is also contended that the second page of the MoM has been fabricated.
12. Though the defendant in the written statement has pleaded that a declaration is required to be made with the Registrar of Companies of transfer of shares in-trust but neither has the counsel for the defendant urged so during the hearing nor am I able to find anything to that effect in the Companies Act or in any of the Rules and Regulations made thereunder. The plea appears to have been taken on the basis of Section 153B and 187C of The Companies Act, 1956 but provisions whereof do not apply after the commencement of Companies (Amendment) Act, 2000 and would thus have no application to the transaction in question. CS(OS) No.1026/2010 Page 14 of 30
13. The MoM which forms the fulcrum of the case of the plaintiff, on page one thereof records receipt of share transfer request from various persons and which were placed before the Board for transfer of shares and contains the resolution of the consent of the Board for such transfers; in the list of transfers mentioned on the said page is included, the transfer of 9,97,150 shares by Omkam and 22,00,000 shares by BGR, both on 27.04.2004 in favour of the defendant. It may be recorded that the said list includes transfer of other shares also by Omkam in favour of others and no consideration for any of the transfers is indicated. However, the second page of the MoM, which according to the defendant has been fabricated and subsequently added to the first page is as under:
"TRANSFER OF SHARES IN TRUST The Board was informed by Mr. Peeyush Aggarwal, Chairman of the company that he was transferring 3,197,150 equity shares and 93,970 equity shares of MPS Technosoft Limited to Mr. Sanjiv Bhavnani Managing Director of Visesh Infotecnics Limited and Mr. Karun Jain Executive Director of Visesh Infotecnics Limited respectively, in trust, to be kept in custody and returnable on demand. The aforesaid shares were sold / transferred to Mr. Peeyush Aggarwal by his following companies, M/s Omkam Developers Pvt. Limited and BGR Finvest Pvt. Ltd. under blank transfer and the same were being given by Mr. Peeyush Aggarwal to Mr. Bhavnani and Mr. jain as above mentioned to hold these shares in trust. Further Mr. Peeyush Aggarwal requested to register the aforesaid transfer without payment of stamp duty on share transfer as the said transfers CS(OS) No.1026/2010 Page 15 of 30 were without consideration and beneficial interest in the shares would remain with Mr. Aggarwal. After detail discussion and deliberation on the matter, following resolution was passed unanimously.
Resolved That the consent of the Board be and is hereby accorded to the following transfers without consideration by way of trust and returnable on demand basis.
Date of Number of Folio of Transferors Folio of Transferee's
Transfer Shares Transferor name Transferee Name
Transferred
27-04-2004 3,197,150 246 Mr. Peeyush 308 Mr. Sanjiv
Aggarwal Bhavnani
27-04-2004 93,970 246 Mr. Peeyush 307 Mr. Karun
Aggarwal Jain
Resolved Further That Company Secretary of the Company be and is hereby authorized to do all acts deeds and things as may be necessary and expedient to give effect to aforesaid resolution.
VOTE OF THANKS There being no other business to transact, the meeting concluded with vote of thanks to the Chair.
Place: New Delhi
Date: 19.05.2004 Chairman"
14. I find, that Section 153 of the Companies Act prohibits entering of any notice of any trust, express, implied or constructive on the Register of Members of a company required to be maintained under Section 150. What the said Section means is that a company shall not record in its Register of CS(OS) No.1026/2010 Page 16 of 30 Members anything to show that as between the member whose name is entered in the Register and any other person, there is any kind of relationship as trustee and beneficiary and the Register is not to show and the company is not to take notice of any such relationship. The object of this Section is to relieve the company from any obligation to take notice of equitable interest in its shares, that is to say, to take notice of rights of third parties in respect of shares registered in the names of any members and to preclude any person claiming a equitable interest in shares from treating the company as a trustee in respect thereof. The effect of Section 153 is that a beneficiary who is not entered as a holder of shares, has no connection with or rights in the company in which any shares are held in-trust by him (Reference 17th Edition 2010 of Ramaiya's Guide to the Companies Act).
15. Unfortunately neither counsel during the hearing adverted to the aforesaid aspect.
16. I have wondered, whether not the MoM aforesaid, are not in the teeth of Section 153 supra.
17. Section 153 bars notice of trust being entered on the Register of Members of the company. The question which arises is whether inspite of the said bar, the company can take notice of such trust in the resolution of its CS(OS) No.1026/2010 Page 17 of 30 Board of Directors preceding the entry in the Register of Members. I have further wondered whether not taking notice of such trust in the resolution of Board of Directors preceding entry in the Register of Members is in the teeth of Section 153 and if the answer is in the affirmative, whether any cognizance thereof can be taken by the Court. I must confess that my research shows a Division Bench of Kerala High Court in Damien Subsidies & Kuries Ltd. Vs. Jose Pulicken [2007] 137 CompCas 288 to have held to the contrary. It was held that a company can take note of or recognize the trust which has been brought to its notice otherwise than by entry in the Register. The dicta laid down by Lord Coleridge, C.J. and Lord Esher M. R. in In re Perkins [1889] 24 QBD 613 (CA) and in Fender Vs. Lushington [1877] 6 Ch D 70 to the contrary laying down that companies have nothing whatsoever to do with the relations between trustees and their cestuis que trust in respect of the shares of the company were not followed and rather the earlier dicta in S. Parameswari Vs. Kamadhenu Metal Rolling Mills P. Ltd AIR 1971 Mad 293 laying down that a company can take notice of or recognize any trust brought to its notice otherwise than by entry in the Register was followed. However, what cannot be lost sight of is that both the said judgments of Madras and Kerala High Courts are of the time when CS(OS) No.1026/2010 Page 18 of 30 Section 153B and 187C supra were applicable. The said provisions, prescribing for the making of declarations by the person holding the beneficial interest in the shares and the person in whose name the shares are recorded but who is not having beneficial interest therein, diluted the spirit of Section 153. Even though the principle underlying Section 153 was that no notice of any trust shall be entered on the Register of Members, Section 153B and 187C permitted the company to take notice of the trust and 187C(4) further provided that notwithstanding provisions of Section 153, any declaration made under Section 187C will have to be noted in the Register of Members. It would thus be seen that Section 153B and 187C, till they existed on the Statute Book, more or less made the provisions of Section 153 redundant and the Company Law Board in Bharat Petroleum Corporation Ltd. Vs. Stock Holding Corporation of India Ltd. [1995] 82 CompCas 539 went to the extent of observing that Section 153 deserved to be removed from the statute book.
18. However, the legislature instead of removing Section 153 from the statute book has made Section 153B and 187C not applicable with effect from 13.12.2000 as aforesaid. The legislative intent clearly is in favor of prohibiting the company from taking notice of any trust. CS(OS) No.1026/2010 Page 19 of 30
19. The prohibition contained in Section 153, if limited merely to entry on the Register of Members would cease to be any prohibition at all. If it were to be held that the prohibition is limited to taking cognizance of the trust only in the Register of Members and does not extend to taking cognizance on / in records other than the Register of Members, also statutorily required to be maintained by the company, would allow the company to take cognizance of such trusts in the resolution of Board of Directors on the basis of which entries are made in the Register of Members and would make a laughing stock of such prohibition. The same cannot be permitted. What is prohibited to be done cannot be permitted to be done indirectly. As aforesaid, the purpose of Section 153 is to relieve the company from any obligation to take notice of equitable interest in its shares and to prevent persons claiming such interest from approaching the company asserting the same. The interpretation, as taken by the Madras and Kerala High Courts if followed inspite of Section 153B and 187C being made inapplicable would defeat the said objective of Section 153, and cannot be taken.
20. I am therefore of the view that even if the part of the MoM where notice is sought to be taken of the plaintiff retaining the beneficial interest in the shares while recording transfer thereof in the name of a defendant was CS(OS) No.1026/2010 Page 20 of 30 sanctioned, were to be ultimately proved to be a part of the MoM, the said part is in the teeth of Section 153 and the Court cannot take cognizance of things which the law prohibits from being done. The said part of the MoM/resolution of the Board of Directors is thus but to be ignored.
21. Once the aforesaid part of the MoM/resolution dated 27.04.2004 is ignored, there is no other document of trust.
22. That nevertheless brings me to the aspect of Benami.
23. The transaction as borne out from the pleadings of the plaintiff and the MoM/resolution dated 27.04.2004 recording "the aforesaid shares were sold / transferred to Mr. Peeyush Aggarwal by his following companies, M/s Omkam Developers Pvt. Ltd. and BGR Finvest Pvt. Ltd. under blank transfer and the same were being given by Mr. Peeyush Aggarwal to Mr. Bhavnani..... to hold the shares in trust" is of transfer of the shares of / by Omkam and BGR in favour of the defendant for consideration paid by plaintiff to Omkam & BGR. There are thus clearly three parties to the transaction i.e. Omkam and BGR as transferors, plaintiff as real purchaser from Omkam and BGR and defendant as the ostensible or Benami purchaser in whose favour transfer is effected. In the light thereof the contention of the CS(OS) No.1026/2010 Page 21 of 30 counsel for the plaintiff of there being no Benami transaction possible without three parties does not survive.
24. Even otherwise I am of the opinion that the reference in Section 2(a) of the Benami Act to „consideration paid or provided‟ is not necessarily to consideration in money and can be consideration of any nature. It is the plea of the plaintiff that the consideration for transfer of the said shares held in the names of Omkam and BGR to the defendant was the new business ventures and clients to be brought by the defendant to VIL of which the plaintiff was holding the majority stake and thus a beneficiary. The same in my view would satisfy the requirement of „consideration‟.
25. Even otherwise I am unable to see as to how the case built by the plaintiff does not fall in the trap of benami. The case in nutshell of the plaintiff is of the shares (which are property within the meaning of Section 2(c) of the Benami Act) though in the name of the defendant, being owned by the plaintiff and the present suit has been filed by the plaintiff to enforce rights in the said shares held benami by the defendant and which is clearly within the bar of Section 4 of the Benami Act.
26. The plaintiff even otherwise has been unable to plead a case of „trust‟. The defendant did not stand in the position of a trustee with the plaintiff and CS(OS) No.1026/2010 Page 22 of 30 merely because the word „trust‟ is used does not allow a transaction to be taken out of Benami Act. Section 4(3)(b) of the Benami Act while carving out an exception in this regard, is applicable only where the person in whose name the property is held is a trustee or stands in a fiduciary capacity qua the beneficiary. Admittedly there is no writing between the parties. The MoM aforesaid also are not signed by the defendant. If there was any iota of truth in the claim of the plaintiff, nothing prevented the plaintiff who was admittedly then the Chairman of VIL to obtain from the defendant who was the Managing Director and in the position of an employee, a writing of the trust. No case of trust is thus made out.
27. The defendant as Managing Director of VIL cannot be said to have been standing in a fiduciary capacity to the plaintiff who was the Chairman of the said company and could at best be said to be standing in a fiduciary capacity to the company i.e. VIL. Similarly, I am unable to see as to how the defendant can be said to be a trustee of the plaintiff. I may notice that the bar / prohibition of the Benami Act is being avoided in all cases where the claim or the defence is clearly hit by the said legislation merely by paying lip service and pleading the opposite party to be the trustee or standing in a fiduciary capacity. Putting such claim or defences merely with the said plea CS(OS) No.1026/2010 Page 23 of 30 to trial tantamounts to permitting the so called „Benami owner‟ to be harassed by litigation at the instance of the person claiming to be the „real owner‟; litigation cannot be permitted to be used as a tool of oppression, often forcing the „Benami owner‟ though having a valid defence of the Benami Act, for the reason of the property coming under cloud owing to the mere pendency of litigation and he being thus deprived from beneficial use thereof, to settle with the „real owner‟.
28. It cannot be lost sight of that Section 81, 82 and 94 of the Indian Trusts Act, 1882 which have been repealed by the Benami Act expressly provided for the person in whose name the property is transferred for consideration provided by another, to be holding the said property for the benefit of the said another. Thus, the mere factum of payment of consideration does not create a trust as was the case earlier.
29. Earlier also in Anil Bhasin Vs. Vijay Kumar Bhasin 102 (2003) DLT 932, the bar of the Benami Act was sought to be defeated by pleading the son to be standing in a fiduciary capacity and as a trustee of the mother. However, it was held; i) that the repeal of Sections 81 and 82 of the Trusts Act by the Benami Act itself establishes that the intention of the legislature was not to allow the concept of trustee or fiduciary capacity of the pre-1988 CS(OS) No.1026/2010 Page 24 of 30 period to continue to remain as an available defence as otherwise the repeal of Sections 81 and 82 would have no meaning and permit avoidance of the prohibition contained in the Benami Act and render the provisions thereof irrelevant; ii) it is only the purchase of property in the name of wife or unmarried daughter which is exempted from the prohibition and even purchase in the name of son or married daughter has not been given that status; iii) once the legislature has expressly conferred exemption in the name of the wife or unmarried daughter, it is to be deemed that such restricted exclusion cannot be extended or made applicable to others; iv) that in view of the repealed Sections 81and 82, there cannot be the same concept of trusteeship or fiduciary capacity as was the position prior to 1988; and v) that after the repeal of Sections 81 and 82, it is only those instances of fiduciary capacity, such as property of a partnership firm held in the name of one of the partners or property which Mr. X wanted Mr. Y to buy in the name of Mr. X but in violation of that instruction, Mr. Y buying the property in his own name can Y be said to be standing in a fiduciary capacity and as a trustee of X, that the exemption under Section 4(3)(b) of the Benami Act would apply.
CS(OS) No.1026/2010 Page 25 of 30
30. I find the aforesaid view to have been followed in D.N. Kalia Vs. R.N. Kalia 178 (2011) DLT 294 where also, the defence of the plaintiff being only the Benami owner and holding the property in trust for the defendant and other family members, was held to be not tenable in view of the Benami Act and the exception contained in Section 4(3)(b) held to be not available.
31. I yet further find another Single Judge in Pushpa Kanwar Vs. Urmil Wadhawan MANU/DE/2993/2009 to have also followed the dicta aforesaid in Anil Bhasin and held that upon repeal by the Benami Act of Sections 81 and 82 of the Trusts Act, the concept of trusteeship or relationship of fiduciary capacity as understood in trust law or that of the transferee being deemed to be holding for the benefit of the person buying or providing the consideration as was the position prior to the Benami Act, does not exist. It was further held that the term fiduciary is not restricted to technical or express trusts but includes even such offices or relations as those of an attorney at law, a guardian, executor, broker, a director of a Corporation, and a public officer. Finding no such office or relationship in the facts of that case, mere plea of the Benami holding the property in a fiduciary capacity was held to be insufficient to escape the bar of the Benami Act. CS(OS) No.1026/2010 Page 26 of 30
32. As far as reliance by the counsel for the plaintiff on Canbank supra is concerned, the Court found that case to be concerned by Section 88 of the Trusts Act and held the list of persons viz. trustee, executor, partner, agent, director of a company, legal advisor to be not exhaustive and held the shares in that case to have been acquired as an agent; the facts of that case also found the „benami owner‟ to be not claiming any right, title or interest therein. The said judgment cannot be said to be inconsistent with the view taken by this Court in Anil Bhasin supra and followed in D.N. Kalia and Pushpa Kanwar supra.
33. Though the counsel for the plaintiff has not referred but mention may also be made of Babita Pal Vs. Jagdish Bansal 196 (2013) DLT 792 (DB) where a plea for summary dismissal of the suit for the reason of the claim therein being barred by the Benami Act was rejected for the reason that the real import of the transaction and the relationship between the parties could be determined only after trial. However, that case fell in the category as discussed in Anil Bhasin supra of Y purchasing property in his own name contrary to the instruction of X who had provided the sale consideration to purchase the properties in the name of X. Thus, the said dicta of the Division CS(OS) No.1026/2010 Page 27 of 30 Bench also does not come in the way of holding the claim in the present case to be barred by the Benami Act.
34. Similarly, the facts of the recent judgment of the Supreme Court in Marcel Martins Vs. M. Printer (2012) 5 SCC 342 were entirely different. There in the facts, the relationship of trust was found to exist. Such is not the case here. Moreover, the Supreme Court in the said judgment held that in determining whether a relationship is based on trust or confidence relevant to determining whether they stand in a fiduciary capacity, the court shall have to take into consideration the factual context in which the question arises for it is only in the factual backdrop that the existence of a fiduciary relationship can be deduced in a given case.
35. In the present case, the pleas of the plaintiff fall in the genre of „fantastic‟. The prevalent market practice is of giving stock options to the employees and not of „parking‟ the stocks with the employees.
36. Some other obvious inconsistencies going to the root of the matter are also found in the case of the plaintiff. Though the plaintiff has approached this Court with himself being the beneficial owner of the shares, with the shares in the name of Omkam and BGR being transferred in the name of the defendant for consideration paid by the plaintiff and on which plea it should CS(OS) No.1026/2010 Page 28 of 30 be the plaintiff who should have been entitled to the dividend with respect to the said shares, but the plea of the plaintiff in para 17 of the plaint is of the defendant having agreed to deposit the said dividend with VIL and in pursuance to the said agreement having deposited Rs.5,50,000/- out of the dividend received of Rs.23,97,863/- with VIL. Even if the plaintiff were to be a majority shareholder of VIL, VIL remains a distinct legal entity from its shareholders and the question of the monies owed to the shareholders being paid to the company without any satisfactory explanation therefor, and which has not been given, does not arise. Similar is the plea of the plaintiff of the loan admittedly repayable by VIL to the defendant being squared off against the balance dividend which as per the case built by the plaintiff should have been repayable by the defendant to the plaintiff. The squaring off is sought to be done with VIL paying Rs.16,50,000/- to the defendant as against Rs.16,02,137/- which was due. The same is also contrary to all canons of accounting practices particularly corporate accounting which is subject matter of internal and external audits. What follows from such inconsistencies is that the present suit is an abuse of the process of the Court to ward off the claim of the defendant for recovery of the balance loan amount admittedly advanced by the defendant to VIL. CS(OS) No.1026/2010 Page 29 of 30
37. The Supreme Court in T. Arvindandom Vs. T.V. Satyapal AIR 1977 SC 2421, Liverpool & London S.P. & I Association Ltd. Vs. M.V. Sea Success I (2004) 9 SCC 512 and ITC Ltd. Vs. Debts Recovery Appellate Tribunal (1998) 2 SCC 70 has held that litigation should not be allowed to be used as a tool of oppression and the Courts should exercise jurisdiction to dismiss a case which has no chance of success and to abort it at the earliest so that the resources of the Courts can be used for deserving cases. The present is one such case.
38. I therefore dismiss the present suit as not disclosing a cause of action and / or being thoroughly vexatious and frivolous and in abuse of the process of this Court. Costs of Rs.20,000/- are also imposed on the plaintiff payable to the defendant.
Decree sheet be drawn up.
RAJIV SAHAI ENDLAW, J JULY 04, 2013 „gsr‟ CS(OS) No.1026/2010 Page 30 of 30