Supreme Court directs Union govt to take over properties held in Benami in Bengaluru

New Delhi: The Supreme Court has said the judicial process cannot be invoked to validate, protect, or perfect that which the law itself declares impermissible, as it directed the central government to take over suit properties in Bengaluru upon finding it to be benami in nature.

A bench of Justices J B Pardiwala and R Mahadevan said stern enforcement of the statute, wherever warranted, alone would send a clear message that benami transactions would neither receive judicial indulgence nor escape statutory consequences.

The court pointed out that it is not uncommon in legal history that whenever the law seeks to prohibit, human ingenuity seeks to disguise.

"From the use of proxies in earlier times to modern layered transactions, the separation of real ownership from ostensible title has long been employed as a device to evade legal restraints. Benami transactions are but a contemporary manifestation of that tendency, where legality is outwardly simulated though never truly intended. Courts, however, are concerned not with the façade, but with the substance that lies beneath it,'' the bench said.

In its judgment on May 8, the court set aside the Karnataka High Court's 2024 judgment, which allowed an appeal filed by D A Srinivas against rejection of his suit to claim properties held in the name K Raghunath, an employee of his companies, on the basis of a Will. Raghunath was murdered on May 04, 2019 and a CBI probe was pending in the matter. Srinivas was stated to be an accused in the murder case.

The appeal before the court was filed by Manjula, wife of Raghunath, and their sons, claiming their rights over the properties.

Upon examining the contention, the court noted the plaintiff pleaded that there existed a fiduciary relationship between him and the deceased K Raghunath. According to the plaintiff, acting in trust and confidence, he entered into various MOUs with K Raghunath, transferred funds to him for the purchase of agricultural lands in the latter’s name, to be held for the benefit of the plaintiff, thereafter converted into non-agricultural lands, and ultimately reconveyed or transferred in favour of the plaintiff. For the said arrangement, a consideration of Rs 2,50,000 per acre was allegedly fixed.

Manjula and her sons claimed the properties were self acquired by Raghunath. They also relied upon another Will to claim their rights.

The court pointed out Section 25 of the Hindu Succession Act provides that a person who commits murder or abets the commission of murder shall be disqualified from inheriting the property of the person murdered, or any other property in furtherance of the succession to which such person committed or abetted the commission of murder.

"Section 25 does not envisage a situation where the person claiming inheritance must necessarily stand convicted in a criminal case. The disqualification operates against a person who commits murder or abets the commission of murder. The provision does not make conviction a condition precedent. The provision imposes a civil consequence against a wrongdoer and the issue may be examined on the standard of preponderance of probabilities, independent of the strict standard of proof applicable to criminal prosecution,'' the bench said.

In the case, the court noted, since Srinivas or his company was disentitled from directly purchasing the lands, a mechanism was devised whereby he allegedly funded the purchase in the name of another, caused the lands to be converted for non-agricultural use, and thereafter sought transfer in his own favour.

"Such an arrangement was plainly intended to defeat the statutory mandate of the Karnataka Land Reforms Act and is therefore hit by Section 23 of the Contract Act. The MoUs, being founded upon an unlawful object, are illegal and void, and no rights can arise therefrom,'' the bench said.

Finding that the transaction, in substance, bears all the indicia of a benami arrangement of the kind sought to be prohibited under the Benami Act, the bench said, what cannot be done directly cannot be permitted to be achieved indirectly.

While directing the Centre to appoint an administrator and take over the properties within eight weeks, the court clarified that since the judicial determination declaring the transaction to be benami has attained finality, no court would entertain any claim in respect of the subject properties arising out of or founded upon such benami transaction.