Scope of Amending the Execution Petition

(By V.S. Girija, Advocate, Kuzhithurai, Kanyakumari District, Tamil Nadu )

An urge to pen a few words on amending the Execution petition emerged while watching arguments in the Court Hall over an application seeking leave of the court to amend the execution petition which was filed under Order VI Rule 17 and Section 151 of the Civil Procedure Code.

The Execution petition was one for attachment of the movable property scheduled. The suit was of the year 1996 and the Execution petition was filed in 2002. The amendment petition was filed in 2014. The most important averment in the affidavit attached to the amendment petition was that, ‘if the execution petition is not pressed and a fresh execution petition is filed for the purpose of introducing a property which did not initially find a place in the property sought to be attached, the latter will be barred by limitation’. Hence, it was clear that the amendment petition was meant to get over the bar of limitation.

Scope of Order VI Rule 17 in the Execution Stage

A reading of Order VI Rule 17 will make it clear that the said provision is applicable to amendment of pleadings. According to Order VI Rule 1 ‘Pleading’ shall mean Plaint or Written Statement. In (2000) 3 Andh 431 (431), it is seen that Order VI Rule 17 is meant only for amending the pleading as given in Order VI Rule 1 land it cannot apply to the Execution Petition. Therefore, a petition to amend the E.P. filed under Order VI Rule 17 is prima facie defective.

However, when an application is filed in the execution stage for amending the Execution application under O.VI R.17, when the object of the petition is to correct an error manifest, but, without changing the nature and character of the Execution Proceedings, courts have inherent power under S.151 & S.153 C.P.C to act in interest of justice. The proposition of law in this aspect is recently found in the Madras High Court decision reported as 2016(1) MWN (Civil) 141.

Execution of Decrees and Orders

Order 21, with the most number of Rules, deals with Execution of Decrees and Orders.

Order 21 Rule 17 contemplates the ‘Procedure on receiving application for execution of decree’. Order 21 Rule 17 provides:

On receiving an application for the execution of a decree as provided by Rule 11 sub-rule (2) (Order 21 Rule 11(2) prescribes the requirements for a written execution application such as number of the suit, names of the parties, date of decree etc...) the Court shall ascertain whether such of the requirements of Rules 11 to 14 as may be applicable to the case have been complied with, the Court shall allow the defect to be remedied then and there or within a time to be fixed by it.

1A. If the defect is not so remedied, the Court shall reject the application:

Provided that where, in the opinion of the Court, there is some inaccuracy as to the amount referred to in clauses (g) and (h) of sub-rule (2) of Rule 11, the Court shall instead of rejecting the application, decide provisionally (without prejudice to the right of the parties to have the amount finally decided in the course of the proceedings) the amount and make an order for the execution of the decree for the amount so provisionally decided.

2. Where an application is amended under the provisions of sub-rule (1) it shall be deemed to have been an application in accordance with law and presented on the date when it was first presented.

3. Every amendment made under this rule shall be signed or initialled by the Judge.

4. When the application is admitted, the Court shall enter in the proper register a note of the application and the date on which it was made, and shall, subject to the provisions hereinafter contained, order execution of the decree according to the nature of the application.

Provided that, in the case of a decree for the payment of money, the value of the property attached shall as nearly as may be, correspond with the amount due under the decree.

Scope of Order 21 Rule 17

Thus, Order 21 Rule 17(1) makes it precise that an application for amending the Execution Petition can be filed if such petition suffers from defects for having not complied with the requirements contemplated under Rules 11 to 14 of Order 21. Eventually, the Rule does not apply where the defect in the application is one which has no reference to Rules 11 to 14. Likewise, if the subsequent application is not one for amendment of the original application but is really an independent application for execution seeking a relief not included in the original application, sub-rule (2) cannot apply and the subsequent application cannot be said to be presented on the date of the original application.

As seen thus, the scope of amending an execution petition lies within the purview of what is provided in Order 21 Rule 17. To make it clear, an execution petition can be amended only as provided in Order 21 Rule 17, and hence Order VI Rule 17 is not applicable for amending an execution petition so as to alter the nature and character of the relief granted in favour of the plaintiff and thereby cause prejudice to the defendant/judgment debtor. Therefore the scope of amending an execution petition is much more limited than amendment of pleadings.

Question of Limitation

In this context, it has to be looked into whether an application for substituting entirely new property for that mentioned in the execution petition must be treated as a fresh application or not. As reported in AIR 1942 All. 442(443), ‘an application for substituting entirely new property for that mentioned in the execution application must be treated as a fresh application’. Therefore an application for amending the execution petition meant to substitute or introduce or add an entirely new property has to be considered as a fresh application. A fresh application can be entertained only if the same is filed within the period of limitation. Therefore, by virtue of Art.136 of the Limitation Act, an application of the kind mentioned above gets barred by limitation after twelve years from the date of decree. The Kerala High Court by its judgment reported in2010 (4) KLT 127 has elaborately discussed whether an item of property can be proceeded against in execution of a decree for recovery of money after the period of limitation prescribed under Art.136 of the Act though the execution petition was filed within the period of limitation. While holding its answer in the negative, the Honourable High Court has discussed the rigour of Section 48 of the C.P.C 1908, (which was repealed by Section 28 of the Act), when read with Art.136 of the Limitation Act. A comparison of the said provisions and the distinction between the expressions ‘fresh application’ (occurring in Section 48 of the Code) and ‘subsequent application’ (in Section 230 of the old Code) is analysed.

It has to be borne in mind that when a party to the proceedings fails to exercise his right provided to him by law, a valuable right accrues in favour of the opponent. It may more or less be by way of a bar of limitation. This right which accrues to the opponent is nevertheless lesser than the right which was available to the former before it became barred. Therefore such a right cannot be taken away to the detriment of the party in whose favour it has bloomed.

Highlights of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 & Security Interest (Enforcement) Rules, 2002 & The Debt Recovery Tribunal (Procedure) Rules, 1993

(By Dr.P.Syamjith, Ph.D. in Law from Dr. Ambedkar Law University, Chennai)

The Central Government introduced the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 in Lok Sabha as Bill No.144 of 2016 to primarily amend the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act (DRT Act) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act). Later on, the bill was passed by both houses of Parliament and got the assent of the President of India on 12th August, 2016. In terms of S.1(2), the Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. The Central Government vide notification appointed 1st September, 2016 as the date on which some of the provisions of the Amendment Act shall come into force. Some more provisions are notified on 4th November, 2016. Further, the Central Government has also made rules to amend the Security Interest (Enforcement) Rules, 2002 & Debt Recovery Tribunal (Procedure) Rules, 1993 vide notification dated 3rd November, 2016.

In the long history of recovery laws, both the Acts, DRT Act and the SARFAESI Act have traveled through various stages in its evolution. During such long journey, these Acts have been subjected to judicial scrutinies at various judicial forums and faced variety of legal objections, which ultimately lead to consequential amendments for perfecting the provisions of these Acts. Though the objects of both the Acts are to expedite the recovery of dues to banks, respective Acts are operating at different platform. In its long journey, both the recovery laws proved to be a beneficial legislation in facilitating the recovery of large dues to the Banks albeit with attentive delay and unavoidable litigation.

While enforcing the provisions of the SARFAESI Act, numerous legal issues and challenges have cropped up which demanded resolution through amendment in the provisions of the Acts. On analysis of the provisions of the Amendments Act, it appears that it has brought out some revolutionary changes in both the Acts, which have got far reaching consequences.

Further, the Central Government has also made rules to amend the Security Interest (Enforcement) Rules, 2002 vide notification dated 3rd November, 2016. The important highlights of the amendments brought in the Recovery of Debts Due to Banks and Financial Institutions Act (DRT Act), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), the Security Interest (Enforcement) Rules, 2002 and the Debt Recovery Tribunal (Procedure) Rules, 1993 are as follows:-

Amendments in the Security Interest (Enforcement) Rules, 2002

AMENDMENTS  IN  DRT ACT -- EFFECTIVE  DATES

Thanks to the Government of Kerala for Providing Social Security to the Legal Profession by Amending the Kerala Advocates Welfare Fund Act and the Kerala Court Fees and Suits Valuation Act

 (By Joseph John, Advocate, Former Chairman, Bar Council of Kerala)

The Kerala Legislative Assembly has passed the Kerala Advocates Welfare Fund (Amendment) Bill 2016 and an amendment to Section 76 of the Kerala Court Fees and Suits Valuation Act 1959. It has also by introducing the Finance Bill 2016 widened the scope of Legal Benefit Fund which authorises the Government to levy additional court fee at the rate of 1% for original suits, appeals and revisions filed before regular civil courts and for original applications, petitions, appeals and revisions in tribunals and other authorities with the objective of providing Social Security measures for members of the legal profession.

The Kerala Advocates Welfare Fund (Amendment) Bill 2016 was introduced in the Legislative Assembly by the Honourable Minister for Law Shri. A.K.Balan aimed at enhancing the welfare fund receivable by an advocate on retirement from the present `5 lakhs to `10 lakhs. This object is achieved by an yearly contribution of `25,000/- each by a member in the fund which at present is only `14,285/-. It also provides for financial assistance to the members of the fund for hospitalized treatment involving major surgical operations and for treatment of cancer and other critical illness to the tune of `1 lakh which is presently `5000/- only and also to provide financial assistance to Advocate Academy constituted by the Bar Council of Kerala for providing training to advocates to enable them to give efficient services to the people. Some of the other major provisions in the Amendment Bill, are as follows:

1. Provide stipend to Advocates who have less than three years standing at the Bar and who are below the age of 30 years and whose annual income is less than one lakh rupees, at a rate determined by the Trustee Committee of the Welfare Fund with the approval of the State Government.

2. To allow membership to the fund for advocates who were in employment otherwise for a period not exceeding five years and retirement benefits or pension of whom does not exceed `5000/-per month.

3. A member of the fund who voluntarily suspends his membership in the fund shall on resumption of practice as an advocate as allowed by the Bar Council can resume his membership in the fund also, thereafter, on payment of `2000/-as resumption fee.

4. The membership in the fund is limited to advocates having actual practice. Actual practice is defined as ‘carrying on profession of an advocate other than Senior Advocate, who have filed at least five vakalaths during an year and whose name is included in the list of practicing advocates published and maintained by the Bar Council of Kerala.

 A non-practicing advocate listed so by the Bar Council who has been a member of the fund shall be entitled to continue as such member of the fund only on inclusion of his name in the list of practicing advocates. On his resumption of practice, his period of non-practice shall be deemed to have been suspended. Those advocates who have left the profession for other employment, business etc., will not be entitled to continue in the fund until they resume practice.

5. By the insertion of sub-clause1E to Section 15 of the Amendment Bill an advocate who has been in actual practice but is not a member of the fund can get admission to the fund by submitting an application in the prescribed manner and by remitting an amount equal to the annual subscription payable by the member according to the duration of his practice at the time of entry , multiplied by 10 or the actual number of years of practice whichever is less together with a fine at the rate of `2000/- for every completed year of actual practice or `20,000 whichever is less. But such member shall not be allowed to receive any benefit from the fund within a period of 10 years from date of admission to the fund. The share of benefit from the fund to such members is limited to maximum of that of ten years or the actual period of practice whichever is less.

6. The minimum amount receivable in the event of death of a member irrespective of his/her period of practice is raised from `3 lakhs `5 lakhs but those who are entitled to get higher amounts will get such higher amount.

The financial sources of the Kerala Advocates Welfare Fund are:-

1.  Income from Advocates Welfare Fund Stamp.

2. Yearly contribution by members to the fund.

3. 20% of the enrolment fee.

4.  Share from Kerala Legal Benefit Fund provided under Section 76 of the Kerala Court Fees and Suits Valuation Act.

The income from the above sources was not at all sufficient to meet the claims of retiring members as per the Amendment. Subscription from members in an year comes to approximately 5 crore rupees. The income obtained by sale of welfare fund stamp comes around to three crores. The yearly contribution from the legal benefit fund is around ` 1.75 crore and share of enrolment fee comes to around two lakhs rupees. So the income received by the fund in an year is below 10 crores of rupees. The average disbursement from the fund comes to almost the same amount.

In the circumstances, to enhance the welfare fund from `5 lakhs to `10 lakhs, material increase in the source of income of the fund became necessary. The Bar Council of Kerala had presented to the Government of Kerala various proposals for increasing the income. The following proposals submitted by the Bar Council of Kerala before the Government have been accepted by the Government.

The annual contribution from a member of the fund shall be collected as per the following table.

II)   Value of welfare fund stamp to be affixed in Vakkalaths is raised from `25 to `50 in the High Court and from `15 to `25 in Subordinate Courts, Tribunals and other authorities.

III) The Bar Council of Kerala had submitted a proposal for making substantial increase in the income to the fund by amending the provisions in Section 76 of the Kerala Court Fees & Suits Valuation Act which provides for Legal Benefit Fund and also to effect necessary changes in the apportionment of the fund to the Advocates Welfare Fund.

The position of Legal Benefit Fund previously and as of now

Section 76 of the Kerala Court Fees and Suits Valuation Act before the Amendment had given authority to the Government of Kerala to levy 1% additional court fee on original petitions, original applications, appeals and revisions to tribunals or appellate authorities where the amount involved in the dispute is capable of valuation and `100 in other cases, by making notification in the Gazette towards legal benefit fund. It also provided for legal benefit fund stamp of `5 to be affixed in Vakkalaths and 50% of the value of legal benefit fund stamp was earmarked to the legal benefit fund. It originally provided for equal apportionment of the amounts thus received for the purpose of providing efficient legal service for the people of the State and the remaining 50% to provide Social Security for members of the legal profession. Even though, the Government is authorized to levy 1% additional court fee, it had by notification charged only 0 .5% of the additional court fee and that also only in the case of appeals and revisions to tribunals and other authorities constituted under special or local law. Thus the expected income was not derived.

By virtue of the Notwithstanding clause included by the enactment of Advocate Clerks Welfare Fund Act, 30% of the legal benefit fund was directed to be transferred to the Advocate Clerks Welfare Fund. The effect of said enactment was that 50% of the legal benefit fund allotted to the Advocates Welfare Fund was reduced to 35% of the remaining 70%.

The total membership in Advocate Welfare Fund is 22,362 whereas that of the Advocate Clerks Welfare Fund is 4239. Thus the per capita distribution of the advocates welfare fund is much less than that of the advocate clerks welfare fund. The Bar Council of Kerala had made definite memorandum before the UDF Government lead by Sri. Ommen Chandy for undoing the anomaly and also for enhancing the quantum of legal benefit fund by suitable amendment of Section 76 of the K.C.F. & S.V. Act providing for authorization to levy 1% additional court fee to original suits, appeals and revisions filed before the civil courts and also to notify the levy of 1% additional court fee in the place of 0.5% in the case of applications, petitions, appeals and revisions to tribunals and other authorities.

The previous Government led by Sri.Ommen Chandy vide the Finance Bill 2016 amended S.76 of the K.C.F. & S.V. Act as requested by the Bar Council of Kerala and on 07.04.2016 issued notifications accordingly in the Official Gazette authorizing levy of 1% additional court fee as stated above with effect from 01.04.2016. Thus a substantial source of income to the Advocates Welfare Fund has been provided which at any rough estimate will not be less than 75 crores of rupees in an year. This would lay a strong base for providing Social Security to members of the legal profession. However after general elections on dissolution of the Kerala Legislative Assembly the Finance Bill lapsed. The Bar Council of Kerala again approached the new LDF Government lead by Sri.Pinarai Vijayan which came to power, for inclusion of the lapsed provisions in the revised budget. The LDF Government was pleased to include the above provisions in the Finance Bill presented by Dr.Thomas Issac (Finance Minister) and had re-notified levy of the additional 1% court fee.

Certain anomalies were pointed out by various Bar Associations in the matter of levy of 1% additional court fee. Therefore the levy of 1% court fee is now made subject to Section 4A of the Kerala Court Fees & Suits Valuation Act and Rule 397(2) of the Kerala Motor Vehicles Rules. In cases where fixed Court Fee is prescribed, the additional court fee is limited to `100 which is also applicable in the case of petitions before the Family Courts.

To make the apportionment of the legal benefit fund proportionate to the membership of the Advocates Welfare Fund, the LDF Government have also further amended sub-clause (3) of S.76 of K.C.F. & S.V.Act by earmarking 70% of the Legal Benefit Fund to Kerala Advocates Welfare Fund and 30% to the Advocate Clerks Welfare Fund, subject to the provision that 10% of each of such allotted funds shall be set apart for providing infrastructure to the litigant public. Thus 63% of legal benefit fund will be credited to the Advocates Welfare Fund in the place of the 35% now received.

It is expected that an yearly accretion of at least 45 crore rupees would ensue to the Kerala Advocates Welfare Fund in the place of present yearly accretion of `1.75 crore which would enable further enhancement of Advocates Welfare Fund payable to the members, in future.

Legal profession is a noble and honourable profession. Lawyers in the country had led the Indian independence movement and lawyers occupy an honourable and dignified position in society. Advocates shall have efficiency, discipline and decorum with etiquette and standards. The Bar Council of Kerala has now established the Advocates Academy for providing training to lawyers and enabling them to provide efficient legal service to the community. Like every profession, lawyers also have to be provided with Social Security. Brilliant and efficient Legal Fraternity from which Presiding Officers emerge has to maintain its own standard. The justice delivery system has to strengthen itself. A retiring advocate should get at least the retirement benefits available to a first grade officer retiring from the State service. The 11th Bar Council of Kerala has taken a strong step forward to achieve this goal among its other activities. We also hope that apart from retirement benefits, a scheme for providing pension to advocates at the normal retirement age also would be possible in the near future.

On this occasion I express my sincere thanks to the LDF and UDF Governments under the leadership of Shri. Pinarayi Vijayan and Shri. Ommen Chandy respectively and to its Law & Finance Ministers Sri. K.M.Mani, Sri.A.K.Balan, Dr.Thomas Issac, Law Secretary Shri.B.G. Harindranath all of whom have coordinated the legislations in this regard. I also express my thanks to various officers of Law and Finance Departments and Officers in KLBF, the Advocate General Sri. C.P.Sudhakara Prasad, former Advocate General Shri. K.P.Dandapani, Shri. C.P.Pramod, Private Secretary to Minister of Law, to the Members of Advocates Welfare Fund Trustee Committee and to the Legal Benefit Fund Trustee Committee and their staff and to all Bar Associations in the State and various lawyer’s organizations. The role played by former Chairman of Bar Council of Kerala Shri. Adv. Manjeri Sreedharan Nair (present Director General of Prosecutions), Adv.T.H. Abdul Aziz, Adv. E. Shanavas Khan, members of the 11th Bar Council of Kerala and its Staff, Adv.Parippalli R.Raveendran, former member of the Bar Council of India is to be specifically mentioned. I also remember the name of Shri. K.Ajayan, Secretary, Bar Council of Kerala for his unstinted support and co-operation in the efforts to realize the above achievements.

Benami Prohibition Act -- "Reconstruction"

(By Ashwin Sathyanath, Advocate, High Court of Kerala)

Introduction

The term “benami” means ‘without name’1Benami transactions are those transactions in which property is transferred to one person for a consideration paid or provided by another.2 In a benami transaction there is an ostensible owner and a real owner. The ostensible owner is known as the ‘benamidar’ and he is simply an ‘alias’ for the name of the real owner with whom the beneficial ownership of the property vest.3 Indian courts have recognised this custom from a very long time. According to Sir George Farwell, ‘benami transactions are quite unobjectionable and resemble the doctrine of English Law that ‘trust of the legal estate results to the man who pays the purchase money’4 However it remains a fact that all benami transactions are not harmless. It is often resorted for furthering illegal and questionable objects like evasion of taxes, defeating creditors etc.5 Taking into account the concerns caused by benami transactions, the President of India promulgated the Benami Transactions (Prohibition of the Right to Recover Property) Ordinance, 1988 based on the suggestions put forth by 57th Law Commission Report. The Government of India later referred this Ordinance to the Law Commission for its detailed examination and as a result the 130th Law Commission Report was submitted which lead to the culmination of ‘The Benami Transactions (Prohibition) Act, 1988’. The Act contained merely nine sections and aims to prohibit benami transactions and the right to recover property held benami.

This Act now stands amended by ‘The Benami Transactions (Prohibition) Amendment Act, 2016’.6 The Amendment Act endeavours to overcome the shortfalls of the earlier Act by amending the definition of ‘benami transactions’ and by providing for the establishment of various authorities in order to deal with benami transactions.7 It also specifies the penalty for entering into benami transactions. The Amendment Act brought in a change in the nomenclature of the Act. ‘The Benami Transactions (Prohibition) Act, 1988’ is now renamed as ‘Prohibition of Benami Property Transactions Act, 1988’.8

Benami Transaction - Definition

There is a significant alteration which is brought about in the definition of the term ‘benami transaction’ by the Amendment Act, 2016. The definition clause of the pre-amendment Act is substituted by a new section which carries along with it a plethora of new terms. The pre-amendment Act defined benami transaction as‘any transaction in which the property is transferred to one person for a consideration paid or provided by another person.’9 Further the pre-amendment Act provided for various exemptions to benami transactions in different sections of the Act.10 S.3(2) provided for an exemption in case of purchase of property in the name of wife/unmarried daughter. Another exemption can be found in S.4(3)(a) & (b) which dealt with transactions in which benamidar is a coparcener of a Hindu Undivided Family (HUF) or a trustee or a person standing in fiduciary capacity. However the post-amendment Act provides for the definition of the term ‘benami transaction’ along with its exemptions in the very beginning saving any kind of confusion.

As per the new definition ‘any transaction or arrangement where the property is transferred to or held by one person for the immediate or future benefit, direct or indirect of another person who paid or provided the consideration is a benami transaction.11 The Amendment Act also qualifies other transactions as benami. These include transactions carried out or made in fictitious name12, transactions where owner is not aware of or denies knowledge of his ownership in the property13 and transactions where the person providing the consideration is not traceable or fictitious.14

The courts have time and again differentiated between ‘benami transactions’ and ‘sham transactions’, the major difference being the absence of operative transfer in the later.15 It was also clarified that the definition of ‘benami transaction’ in the pre-amendment Act does not contemplate ‘sham transaction’ and hence they will not come within the purview of the Act.16 However by inclusion of transactions in the name of fictitious name etc., within the new definition, the post-amendment Act make itself applicable to sham transactions also.

Benami Transaction - Exemptions

As mentioned above, the exemptions to the definition of benami transactions have been provided in various sections of the pre-amendment Act. S.3(2) of pre-amendment Act provided that the prohibition to enter into benami transaction is not applicable to a person who purchase the property in the name of his wife or unmarried daughter. Another important feature of S.3(2) was that it carried along with it a rebuttable presumption that the property is purchased for the benefit of wife/unmarried daughter. The Amendment Act while omitting S.3(2) from the Act, introduced a new provision which has a wider amplitude. The word ‘wife’ in the pre-amendment Act is substituted by the word ‘spouse’ and the word ‘unmarried daughter’ by the word ‘any child’.17 The result of this being that in addition to the earlier scenario of husband or father purchasing the property in the name of his wife or unmarried daughter respectively, the exemption is now also available even if a wife purchases the property in the name of her husband or a father/mother makes a purchase in the name of any child (either son or daughter). In addition to this, the exemption in the post-amendment Act is silent about the presumption which existed earlier and the only new requirement is that the consideration for purchase should flow from the known sources of the individual. While evaluating the provisions of the pre-amendment Act the Hon’ble Supreme Court has clarified that though S.3(2) is an exemption to the Act as whole, the husband or the father should necessarily overcome the presumption attached along with it. 18 At the same time there were instances where the Courts have appreciated the fiduciary relationship between a husband and wife and proceeded under S.4(3)(b) which is free from any kind of presumption instead of S.3(2).19 Considering the fact that there already exist and will continue to arise numerous litigations invoking this exemption, the new change brought about by eliminating the rebuttable presumption will have its share of significance.

Further S.4(3)(a) of the earlier Act is omitted by the Amendment Act and a similar provision is attached along with the definition of the benami transaction by way of exemption. S.4(3)(a) of the pre-amendment Act provided that the bar to file the suit or raise a defence contemplated under S.4 will not be applicable if the benamidar is a coparcener of H.U.F. and the property is held for the benefit of other coparceners. The post-amendment Act also provides for the same with a slight modification. It contemplates two scenarios. First, is when the benamidar is the Karta or a member of the H.U.F. and the property is held for his or her benefit alone. The second scenario is when the benamidar (Karta/member) holds the property for the benefit of the family. Another criterion introduced for this kind of transaction is that the consideration for purchase of the property should flow from the known sources of the H.U.F.20 The pre-amendment Act was silent about the source of consideration and hence even if a property was purchased by one coparcener using his personal income in the name of other coparcener, it stood exempted. But after the amendment it is mandatory that the consideration should flow from the known sources of the H.U.F.

Section 4(3)(b) of the pre-amendment Act also stands omitted. S.4(3)(b) of the earlier Act provided that prohibition to file a suit or raise a defence will not apply if the benamidar is a trustee or a person standing in fiduciary capacity. The new provision in the post-amendment Act also provides for a similar provision along with an elaborate inclusive definition for ‘persons standing in fiduciary capacity’ which includes trustees, executors, partners, director of company, depository etc.21

Apart from altering the already existing exemptions which were found in the pre-amendment Act, the legislature also found it apt to exempt a new kind of transaction which did not find any mention earlier. It provides that when any individual purchases property out of his known sources in the name of his brother, sister, lineal ascendants or descendants and the name of such individual along with the person in whose name the property is purchased appears as joint owners in the document, then such transactions are also an exemption to the definition of benami transaction.22

Retrospective Operation

Section 4 of the Act provides for prohibition of right to recover property held benami. S.4(1) & (2) prohibits a person claiming to be the real owner to raise the plea of benami irrespective of his position as a plaintiff or defendant in a suit, claim or action. S.4(1) prohibits the person claiming to be the real owner of the property to knock the doors of the court by filing a suit, claim or action inorder to enforce his right against the benamidar or any other person. Similarly S.4(2) prohibits a person claiming to be the real owner to take the defence of benami in any suit, claim or action filed by the benamidar or any other person. S.4(1) & (2) remains unamended and still remains in prominence. It is only S.4(3) which got omitted and a similar provision found place in the new exemptions provided.

The Hon’ble Supreme Court in the case of Mithilesh Kumari v. Prem Behari Khare 23 had an occasion to consider the retrospectivity of the Act in relation to S.4. The court held that S.4 applies to ‘pending’ as well as ‘future’ suits, claims or actions. Thus apart from preventing enforcement of any right and raising of any defence based on the plea of benami in a fresh suit, claim or action, S.4(1) & (2) was held to apply on all suits, claims and actions pending and awaiting consideration on the date of commencement of the Act. This decision resulted in holding all such suits, claims or actions pending till the date of commencement of the Act as infructuous.

Later the Apex Court in the case of R.Rajagopal Reddy & Ors. v. Padmini Chandrasekharan 24 examined the correctness of its earlier judgment in Mithilesh Kumari.25 The three Judge Bench held that the legislature never intended the application of S.4 on pending suits, claims or actions. Thus if a person claiming to be the real owner sought to enforce any right or took a defence based on the plea of benami before coming into force of S.4, he or she is free from the clutches of S.4 (1) & (2). With regard to S.4(2), the court made it clear that, if a suit, claim or action was filed by a benamidar before the commencement of the Act, the person claiming to be the real owner should have submitted his defence by way of written statement before the commencement of the Act. Though the court held that S. 4 is not retrospective, it concurred with Mithilesh Kumari 26 on the observation that prohibition under S.4(1) & (2) will be attracted even if a benami transaction was carried out prior to the commencement of the Act. Thus the test is not as to when the transaction took place but as to when suit was filed or the defence was raised. The Hon’ble Apex Court again in the case of Rebti Devi v. Ram Dutt 27 have categorically analysed the aspect of retrospectivity of in relation to its earlier judgments.

The post amendment Act still contain the provisions of S.4(1) and (2) and thus the aspect of retrospectivity which is clarified by the Hon’ble Apex Court still remain as the precedent.

Establishment of Authorities

The post-amendment Act establishes various authorities namely, Initiating Officer, Approving Authority, Administrator and Adjudicating Authority.28 If the Initiating officer believes that any person is holding a property as benamidar, he may issue notice to such person. Notice shall also be issued to the beneficial owner if his identity is within the knowledge.29 Further the Act also gives the Initiating Officer the power to provisionally attach the property with the prior approval of the Approving Authority, if he is of the opinion that the property may be alienated during the notice period.30After inquiry and taking into account all relevant materials the Initiating Officer shall within a period of 90 days pass an order to continue the provisional attachment (if already attached) or attach the property provisionally till the passing of the order of Adjudicating Authority. Initiating Officer also has the power to revoke the provisional attachment or decide not to attach the property with the prior approval of the Approving Authority.31 However, if the property stands attached until the order of the Adjudicating Authority, Initiating Officer shall within 15 days of attachment, draw up a statement of case and refer it to the Adjudicating Authority.32 After the receipt of reference from the Initiating Officer, the Adjudicating Authority shall issue a notice to furnish necessary documents, particulars or evidences to the benamidar or beneficial owner or claimants or interested party.33The Adjudicating Authority after considering the reply to the notice and carrying out necessary inquiry and hearing all the parties will pass an order holding the property as benami or otherwise and accordingly confirm or revoke the attachment order.34 An order holding the property as Benami will be followed by the act of Adjudicating authority confiscating the property and after confiscation the power will vest with the Administrator to receive and manage the property and he shall take possession accordingly.35

The Act also provides for the establishment of Appellate Tribunal to hear the appeals against the order of the Adjudicating Authority. Any person including the Initiating Officer who is aggrieved by the order of the Adjudicating Authority can prefer an appeal within a period of 45 days.36 Further there is also a provision to prefer an appeal in the High Court against the order of the Appellate Tribunal within a period of 60 days.37

The Act also provides for designating certain Session Courts as special courts for the trial of any offence punishable under the Act.38 There is also an enhancemnet in the punishment contemplated for entering into benami transactions and provides for rigorous imprisonment for a term not less than 1 year upto 7 years along with fine.39 The post-amendment Act also penalises providing of false information.40

Conclusion

The amendment brought about is welcoming taking into account the confusion caused by the pre-amendment Act. The scope of the term ‘benami transaction’ has expanded and brings within its purview various transactions including ‘sham transaction’. The transactions which are exempted are categorically mentioned and endeavours to include all types of genuine transactions.The Amendment Act also provides for an effective instituional mechanisam which will ensure due enforcement of its provisions.

Foot Note:

1.     57th Report of the Law Commission of India, Benami Transactions (1973).

2.     Section 2(a), The Benami Transactions (Prohibition) Act,1988.

3.     Gurnarain v. Sheolal(AIR 1918 P.C.140).

4.     Bilas Kumar v. Desraj Ranjit Singh (AIR 1915 PC 96).

5.     57th Report, supra note 1, at 6.

6.     The Gazette of India, dt. August 11, 2016 (See 2016 (4) KLT Central Statutes Page Nos. 31 to 53).

7.     Bill Summary-The Benami Transactions (Prohibition) Amendment Bill, 2015 (PRS Legislative Research, 2015).

8.     Section 3, The Benami Transactions (Prohibition) Amendment Act, 2016.

9.     Section 2(a), The Benami Transactions (Prohibition) Act, 1988.

10.  Section 3(2), S.4(3)(a) & (b), The Benami Transactions (Prohibition) Act, 1988.

11.  Section 2(9)(A)(a) & (b), Amendment Act.

12.  Section 2(9)(B), Amendment Act.

13.  Section 2(9)(C), Amendment Act.

14.  Section 2(9)(D), Amendment Act.

15.  Sree Meenakshi Mills Ltd v. Commissioner of Income Tax, AIR 1957 SC 49.

16.  Sumathikutty v. Sathyabhama (1994 (2) KLJ 244; Ouseph Chacko v. Raman Nair (1989 (1) KLT 767).

17.  Section 2(9)(A)(iii), Amendment Act.

18.  Nand Kishore Mehra v. Sushila Mehra (1995) 2 SCC 572.

19.  Muhammed Basheer v. Jameela 2013 (1) KLT 1; Belcita Vincent Gomez v. Vincent Gomez 2013 (4) KLT 890.

20.  Section 2(9)(A)(i), Amendment Act.

21.  Section 2(9)(A)(ii), Amendment Act.

22.    Section 2(9)(A)(iv), Amendment Act.

23.    Mithilesh Kumari v. Prem Behari Khare (1989 (1) KLT SN 29 (C.No.46) SC = (1989) 2 SCC 95).

24.    R.Rajagopal Reddy & Ors. v. Padmini Chandrasekharan (1995) 2 SCC 630.

25.    Mithilesh Kumari (1989 (1) KLT SN 29 (C.No.46) SC = (1989) 2 SCC 95.

26.    Mithilesh Kumari (1989 (1) KLT SN 29 (C.No.46) SC = (1989) 2 SCC 95.

27.  Rebti Devi v. Ram Dutt (1997) 11 SCC 714.

28.  Section18, Amendment Act.

29.  Section 24(1) & (2), Amendment Act.

30.  Section 24(3), Amendment Act.

31.  Section 24(4), Amendment Act.

32.  Section 24(5), Amendment Act.

33.  Section 26, Amendment Act.

34.  Section 26(3), Amendment Act.

35.  Section 28, S.29, Amendment Act.

36.  Section 46, Amendment Act.

37.  Section 49, Amendment Act.

38.  Section 50, Amendment Act. 

39.   Section 53, Amendment Act.

40.  Section 54, Amendment Act.