Madan Jha vs Keshwa Jha & Ors.

Heard learned senior counsel for the appellant and learned counsel for the respondents.

The present first appeal has been preferred under Section 96 of the Code of Civil Procedure, 1908 (hereinafter referred to as ‘C.P.C.’) against the judgment and decree date 06.11.2017 and 20.11.2017 respectively, passed by the Court of learned Sub- Judge-V, Motihari, East Champaran (hereinafter referred to as ‘Trial Court’) in Title Suit No.555 of 2016, wherein the learned Trial Court has rejected the compromise petition dated 05.12.2016 on the ground that it is not valid in terms of Order XXIII, Rule 3 C.P.C. and also dismissed the aforesaid title suit as barred by law under Sections 3 & 4 of the Benami Transactions (Prohibition) Act, 1988, (hereinafter referred to as ‘Benami Act’) on the ground that the suit has been filed claiming to be the real owner of the suit lands which are benami transactions in the name of brothers (defendant nos.1 to 3) and cousin brothers (defendant nos.4 and 5) of the plaintiff-appellant.

The brief facts of the case are that the plaintiff-appellant, Madan Jha, instituted Title Suit No.555 of 2016 on 30.08.2016 seeking a declaration that the lands described in Schedule-I of the plaint are the purchased properties of the plaintiff-appellant and that he has title and possession over the same. It is the case of the plaintiff-appellant that the defendants, who are his own brothers as well as cousin brothers, were in a relationship of trust with him and that, being an advocate and having his own business, he had purchased the suit lands from his own income in the names of the defendants. It was further pleaded that the consideration for the purchase of the aforesaid lands had been paid by the plaintiff-appellant, that the lands were in his possession and that the original sale deeds were also in his custody. According to the plaintiff-appellant, the properties in question were his self-acquired properties and the defendants had admitted his right, title and possession over the same. The cause of action for institution of the suit was stated to have arisen when the defendants allegedly started laying unlawful claim over the suit lands.

During the pendency of the suit, on 05.12.2016, both sides appeared before the learned Trial Court and filed a compromise petition, duly signed by the parties. By the said compromise, the defendants stated to have left their claim over the suit lands forming part of Schedule-I of the compromise petition. The parties were examined before the learned Trial Court who have consented to the said compromise. The learned Trial Court, however, proceeded to consider the question as to whether the compromise entered into between the parties was permissible in law in view of the provisions of Order XXIII, Rule 3 of the C.P.C., particularly in the light of the bar contained under Sections 3 & 4 of the Benami Act, as amended by the Benami Transactions (Prohibition) Amendment Act, 2016.

The learned Trial Court, while considering the validity of the compromise petition dated 05.12.2016, took note of the fact that the plaintiff-appellant had instituted the suit claiming to be the real owner of the suit lands, which, according to the plaintiff himself, had been purchased in the names of his brothers and cousin brothers. The learned Trial Court considered the question as to whether the suit was barred under Sections 3 and 4 of the Benami Act. The learned Trial Court found that although it was pleaded in the plaint that the plaintiff-appellant and defendants were in a relationship of trust from the beginning, such pleading was not supported by any evidence/document, as neither the plaintiff Madan Jha, nor the defendants had stated anything about any fiduciary relationship between the plaintiff and the defendants in their testimonies with respect to compromise petition. The learned Trial Court, therefore, considered whether such fiduciary relationship could be presumed merely on account of the fact that the parties were brothers/cousins. It held that there was nothing on record to show that the defendants were duty bound to act for the benefit of the plaintiff-appellant, that they had assumed control and responsibility of the plaintiff, or that there was any specific relationship between the plaintiff and the defendants which had traditionally been recognised as involving fiduciary duties, such as the relationship between a lawyer and his client. The learned Trial Court further held that mere blood relationship between the plaintiff and the defendants and the assertion that the plaintiff had purchased the suit lands in the name of the defendants for his own benefit did not establish a fiduciary relationship between the parties, particularly when some of the defendants were cousins of the plaintiff. The learned Trial Court also observed that it was not the case of the parties that the suit lands had been purchased by the defendants from the fund provided by the plaintiff and concluded that, in the facts and circumstances of the case, the transaction was a Benami transaction made by the plaintiff which did not fall within the exceptions granted under the Benami Act. The learned Trial Court accordingly held that the plaintiff-appellant had filed the suit on 30.08.2016 claiming to be the real owner of the suit lands which were benami transactions in the names of the brothers/cousins of the plaintiff-appellant and that the suit was barred under Sections 3 and 4 of the Benami Act. Consequently, the compromise petition was held to be not valid in terms of Order XXIII, Rule 3 of the C.P.C. and was rejected, and the suit was dismissed as barred by law.

Learned senior counsel for the plaintiff-appellant submitted that the learned Trial Court has committed a serious error of law in dismissing the suit as barred under Sections 3 and 4 of the Benami Act without properly appreciating the pleadings, evidence and the compromise entered into between the parties. It is submitted that the suit was instituted for declaration of the plaintiff-appellant’s right, title and possession over the suit lands and that the defendants, being the brothers and cousin brothers of the plaintiff-appellant, had voluntarily entered into a compromise and expressly relinquished their claim over the suit lands. It is further submitted that in the inquiry with respect to compromise all the parties were examined before the learned Trial Court and had accepted the compromise petition dated 05.12.2016, yet the learned Trial Court rejected the same without framing any issue on the question of the alleged bar under the Benami Act and without permitting the parties to lead evidence on the said issue. Learned senior counsel submitted that the learned Trial Court further failed to appreciate that the plaintiff-appellant had specifically pleaded the relationship of trust between the parties and that the properties had been acquired by the plaintiff-appellant from his own sources of income, and therefore, the transaction was covered by the exception relating to a fiduciary capacity. He has referred and relied upon the observation made by the Hon’ble Supreme Court in Pawan Kumar v. Babulal and Ors., reported in 2019 (4) SCC 367 to support his argument that whether the matter comes within the purview of Section 4 (3) of the Benami Act in an aspect which must be gone into on the strength of the evidence on record.

Learned senior counsel for the plaintiff-appellant next submitted that the learned Trial Court ought to have considered the compromise petition in its proper perspective and ought to have recorded the compromise in terms of Order XXIII Rule 3 of the C.P.C., particularly when the defendants themselves had abandoned their claim over the suit properties and had accepted the plaintiff-appellant’s claim thereto. It is submitted that the mere fact that the properties stood in the names of the defendants could not, in the facts of the present case, by itself lead to the conclusion that the transaction was hit by the statutory bar, particularly when the plaintiff-appellant’s specific case was that the defendants were holding the properties for his benefit. It is, moreover, submitted that the impugned judgment and decree are erroneous both on facts and in law and are liable to be set aside and the compromise petition dated 05.12.2016 deserves to be accepted in accordance with Order XXIII Rule 3 of the C.P.C.

Learned counsel for the respondents also submitted that the respondents have no objection to the claim of the plaintiff-appellant and have accepted the compromise petition dated 05.12.2016 entered into between the parties. It is submitted that the respondents, being the brothers and cousin brothers of the plaintiff-appellant, had voluntarily entered into the compromise and had relinquished their claim over the suit lands forming part of Schedule-I of the compromise petition. It is further submitted that the parties had admitted and accepted the terms of the compromise, and therefore, there was no dispute remaining between the parties with regard to the suit properties. It is accordingly submitted that the compromise petition ought to have been accepted by the learned Trial Court in terms of Order XXIII Rule 3 of the C.P.C. and that the dismissal of the suit on the ground of the bar under the Benami Act was not justified in the facts and circumstances of the present case.

It is further submitted that under Order XXIII, Rule 3 of the C.P.C., when both the parties have accepted that the parties have signed the compromise petition which contains terms that they had accepted and all the parties have accepted the document of compromise to be genuine, the learned Trial Court ought to have recorded the same and no option lay before the learned Trial Court to act otherwise. Learned Senior Counsel relied upon the judgment of the Hon’ble Supreme Court in K. Venkata Seshiah v. Kanduru Ramasubbamma (dead) by Lrs., reported in (1991) 3 SCC 338, wherein it was held that if the compromise petition is genuine and lawful, the same has to be acted upon.

Having considered the submissions advanced on behalf of the parties and upon perusal of the materials available on the record, the point of determination which arises for consideration in the present appeal is: “whether the learned Trial Court was justified in rejecting the compromise petition dated 05.12.2016 and dismissing the suit as barred under Sections 3 and 4 of the Benami Act?”

The above point of determination, in turn, requires examination of the nature of the relief claimed in the suit, the effect of the pleadings of the plaintiff-appellant with regard to the alleged benami transaction, the plea of fiduciary capacity, and, more particularly, the legal effect of the compromise entered into between the parties and accepted by them before the learned Trial Court.

This Court shall first consider the contention with regard to the suo motu power of the learned Trial Court to examine whether the suit was barred by law.

It is a settled principle of procedural law that where, from the statements contained in the plaint itself, the suit appears to be barred by any law, the Court is required to examine the same at the threshold in terms of Order VII, Rule 11(d) of the C.P.C. The power under Order VII, Rule 11(d) of the C.P.C.is not dependent upon the defendant raising a specific objection or upon an issue being framed, since the mandate contained therein obliges the Court to reject the plaint where the bar is apparent from the averments in the plaint itself. The object of the provision is to prevent continuation of litigation where the plaintiff's own pleadings disclose that the relief claimed cannot be granted by a civil Court on account of a statutory prohibition.

In the present case, the plaintiff-appellant himself pleaded that the suit lands had been purchased in the names of the defendants, whereas the consideration for such purchase had been paid by him and that, notwithstanding the purchase standing in the names of the defendants, he was the real owner of the properties. The relief sought in the suit was consequently founded upon the assertion of the plaintiff-appellant that the apparent purchasers were not the real owners and that the plaintiff-appellant was the beneficial or real owner of the properties. Thus, the very foundation of the suit, as disclosed from the plaintiff’s own pleadings, attracted consideration of the provisions of the Benami Act, as amended. The learned Trial Court was, therefore, not precluded from examining the statutory bar merely because no separate issue had been framed on that aspect. The absence of a formally framed issue, by itself, cannot confer jurisdiction upon the civil Court to adjudicate a claim which is expressly prohibited by law, nor can it prevent the Court from taking note of a statutory bar which goes to the maintainability of the proceedings. The real question, therefore, is not whether the learned Trial Court could examine the bar suo motu, but whether, on the pleadings and material available before it, the present claim was in fact hit by the statutory prohibition or fell within any of the exceptions carved out by the statute.

The Hon’ble Supreme Court in Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited, reported in (2022) 10 SCC 1, has observed with respect to the mandate of Order VII Rule 11 of the C.P.C., as under:

Now, it is significant to understand the intent of provisions enshrined under Sections 3 and 4 of the Benami Act. Sections 3 and 4 of the Benami Act introduced two distinct forms of prohibition. Section 3 prohibited the entering into a benami transaction, whereas Section 4 prohibited enforcement of rights in respect of benami property or raising such claim as a defence. The exception under Section 4 of the Benami Act could arise only when suit or claim instituted or defended in respect of property already held benami. In contrast, the prohibition under Section 3 is related to the original acquisition of the property. Put differently, invocation of Section 4 would not arise unless there had already been a transaction falling within the ambit of Section 3 of the Benami Act. Section 2 (a) of the Benami Act defines a benami transaction as one where the consideration was paid or provided by another person. The test for determining whether a transaction was benami depends upon the intention and conduct of the purchaser. The Benami Act, in effect, extinguished the right of a real owner to recover the property from the person whose name it stood.

Section 4 remains the same as under the Benami Act, 1988 barring the fact that Section 4 (3) has integrated the exceptions provided under the definition of benami transaction in terms of Section 2 (a). The civil consequences apply even post the amended Benami Act, 2016 which came into force on 01.11.2016 which amends the 1988 Act.

In the present case, the learned Trial Court has not merely proceeded on the basis of a defence raised by the defendants; rather, the very foundation of the plaintiff’s claim, as disclosed in the plaint, is that although the suit properties were purchased in the names of the defendants, the consideration had been paid by the plaintiff and, consequently, the plaintiff was the real owner thereof. Such a claim necessarily brings into consideration the statutory prohibition contained in Section 4 of the Benami Act. Section 4(1) expressly prohibits a suit, claim or action to enforce any right in respect of property held benami by or on behalf of a person claiming to be the real owner.

The Hon’ble Supreme Court in Marcel Martins v. M. Printer & Ors. reported in (2012) 5 SCC 342 has also explained that the prohibition under Section 4 applies to a suit instituted by a person claiming to be the real owner, subject to the exceptions contained in sub-section (3). Thus, once the plaintiff’s own case is that the apparent purchasers were not the real owners and that the plaintiff was the person for whose benefit the properties had been acquired, the applicability of the statutory prohibition was a question which the learned Trial Court was justified in examining.

It is pertinent to note that Section 7 of the Benami Act repealed the provisions of Sections 81, 82 and 94 of the Indian Trusts Act, 1882 and which provisions of the Trust Act gave statutory recognition and protection to the benami Transactions by calling such transactions protected by a relationship of a ‘trust’. Benami transactions were very much legal within this country before passing of the Benami Act and the relationship of a benamidar to the owner was in nature of a trust/fiduciary relationship.

It is now relevant to understand the expression ‘fiduciary relationship’. A fiduciary relationship means a relationship of trust and confidence, wherein one person acts for the benefit of another and beneficiary reposes special trust in that person. Illustrative instances recognized by Courts includes the relationships of trustee and beneficiary, guardian and ward, agent and principal, director and company, partners inter se, and executor and estate.

This leads to the next question as to whether the transaction pleaded by the plaintiff-appellant falls within the exception relating to property held by a person in a fiduciary capacity for the benefit of another. The statutory scheme itself recognises that every transaction in which the ostensible owner and the person claiming to be the real owner are different would not necessarily be prohibited, and an exception is carved out in respect of a person standing in a fiduciary capacity for the benefit of another. The expression “fiduciary capacity”, however, cannot be inferred merely from the existence of a close relationship between the parties. What is required to be examined is whether, in the facts and circumstances of the particular transaction, the ostensible owner was under an obligation to hold or deal with the property for the benefit of the person asserting the beneficial ownership, accompanied by the requisite element of trust, confidence and obligation.

In the facts of the present case, the plaintiff-appellant pleaded that the defendants were in a relationship of trust with him and that the suit properties had been purchased in their names from the plaintiff’s own funds, while the plaintiff-appellant retained possession of the properties as well as the original sale deeds. The defendants are admittedly the brothers and cousin brothers of the plaintiff-appellant. The learned Trial Court noticed that in the inquiry with respect to the compromise petition, neither the plaintiff-appellant, nor the defendants had specifically stated in their depositions that the defendants were holding the properties in a fiduciary capacity for the benefit of the plaintiff-appellant.

The claim of plaintiff-appellant with respect to trust with the defendants in a bald averment unsubstantiated by even sliver of a document. Plaintiff-appellant has not filed any written deed evidencing existence of any fiduciary relationship between plaintiff and defendants. Therefore, in the absence of the said documents, the plaintiff’s reliance on the judgments of the Hon’ble Supreme Court in Pawan Kumar (supra) and Marcel Martins (supra) is misconceived. In both the above relied cases, there were documents filed on record by plaintiff therein, which prima facie evidenced flow of funds from plaintiff therein to defendant as well as existence of a fiduciary relationship, which evidence could be tested at the stage of trial. However, in the present case, there is no iota of evidence. The absence of documents and material particulars to support the vague averments in the plaint shows that no such facts exist. The plaintiff-appellant by merely stating trust in the plaint is nothing but a clever drafting to create an illusion of a legal plea of fiduciary capacity for dishonestly invoking the exception of the Benami Act. The aforesaid pleas in the plaint altogether fail any presumption that stood as a trustee qua the plaintiff-appellant with respect to defendants’ suit property.

The said bald averment is not sufficient for invoking the said proviso of the Benami Act. The averments made in the plaint failed to show any fiduciary relationship between plaintiff-appellant and defendants.

In the absence of specific pleading establishing such fiduciary capacity, the said exception cannot be invoked to surmount the statutory bar contained under Section 4 of the Benami Act.

Moreover, it is not in dispute that disputed questions of fact are to be adjudicated upon trial. The plaint may be rejected when the suit is barred by law even if the averments in the plaint are taken at their face value. What is implied in Order VII, Rule 11 of the C.P.C. in a meaningful reading of the plaint because the bar of law may be either expressed or by necessary implication. The Hon’ble Supreme Court in the case of Manjula and Ors. v. D.S. Srinivas, reported in 2026 SCC OnLine SC 831, referred the previous judgment in Pawan Kumar (supra) and other judgments and has observed as under:

The distinction is material because the statutory exception is attracted by the character of the legal relationship in which the property is held and not merely by the relationship by blood between the parties. The fact that the plaintiff-appellant claims to have paid the consideration, that the properties were purchased in the names of the defendants and that the plaintiff-appellant claims to have remained in possession thereof may constitute circumstances relevant to the question, but those circumstances, by themselves, do not necessarily establish the existence of a fiduciary obligation. In the present case, therefore, the plea of fiduciary relationship has to be tested against the evidence led by the parties and cannot be accepted merely on the basis of the relationship of brotherhood or cousinhood. On the material noticed by the learned Trial Court, there is no pleading or evidence during the inquiry demonstrating that the defendants had undertaken or were under a legal obligation to act for the benefit of the plaintiff-appellant in relation to the suit properties. The exception relating to fiduciary capacity, therefore, cannot be invoked merely on the basis of the pleaded relationship of trust. The learned Trial Court properly held that suit is barred by law because bar arose from the plaintiff’s own statement.

The next and more substantial question is with regard to the effect of the compromise petition dated 05.12.2016. Order XXIII, Rule 3 of the C.P.C permits the Court to record a lawful agreement or compromise in writing and signed by the parties, where the Court is satisfied that the suit has been adjusted wholly or in part by such agreement or compromise. The essential requirement, therefore, is that the compromise must be lawful. A Court passing a compromise decree performs a judicial act and not a ministerial act. The Court must satisfy itself by taking evidence or on affidavits or otherwise that the agreement is lawful. The mere fact that all the parties have consented to the compromise and have admitted their signatures and terms before the Court does not, by itself, dispense with the statutory requirement that the subject-matter of the compromise must be capable of being lawfully compromised. A compromise cannot be permitted to achieve, indirectly, an object which the substantive law expressly prohibits.

In the present case, the compromise petition was admittedly filed by both sides on 05.12.2016. The defendants had stated therein that they had left their claim over the suit lands forming part of Schedule-I, and all the parties were examined before the learned Trial Court and accepted the compromise petition. Thus, there is no dispute as regards the voluntary character of the compromise or the fact that the parties had agreed to settle their inter se dispute. However, the question which assumes significance is whether the Court could record such compromise when the substantive relief claimed by the plaintiff was founded upon an assertion that he was the real owner of properties standing in the names of the defendants and such claim was prima facie hit by the prohibition contained in the Benami Act.

The compromise cannot be considered in isolation from the nature of the relief claimed in the suit. The plaintiff-appellant did not institute the suit merely for recording an agreement between the parties or for obtaining a declaration based upon an independent and undisputed title. His claim was that the defendants were the ostensible purchasers whereas the plaintiff-appellant was the real owner, having paid the consideration from his own funds. The relinquishment by the defendants of their claim over the properties, though it may settle the dispute as between the parties, cannot by itself alter the legal character of the original claim or confer upon the civil court jurisdiction to recognise a right which the statute prohibits from being enforced. Consequently, the consent of the defendants, even if genuine and voluntary, cannot be treated as determinative of the legality of the compromise.

At the same time, the fact that the parties had entered into a compromise and that the defendants had expressly relinquished their claim over the suit properties is a circumstance which was required to be considered by the learned Trial Court in the proper legal perspective. The learned Trial Court was required to determine whether the compromise, viewed in the context of the relief sought and the statutory prohibition, constituted a lawful adjustment of the suit within the meaning of Order XXIII Rule 3 of the C.P.C. The mere examination and admission of the parties could not by themselves make the compromise lawful; conversely, the mere filing of a suit involving a transaction alleged to be Benami would not render every subsequent agreement between the parties automatically incapable of being examined under Order XXIII Rule 3 of the C.P.C. The legality of the compromise has, therefore, to be determined with reference to the substantive rights which the plaintiff-appellant sought to enforce and the statutory prohibition governing such rights.

On a conjoint consideration of the pleadings, the material on record and the terms of the compromise, the determinative consideration remains that the plaintiff’s claim to be the real owner of the properties purchased in the names of the defendants was the very foundation of the suit. Once such claim is found to be within the prohibition of the Benami Act and outside the statutory exception relating to fiduciary capacity, the parties cannot, by merely consenting to a compromise, confer legality upon a claim which is otherwise prohibited by law. The learned Trial Court was, therefore, justified in examining the legality of the compromise notwithstanding the consent of the parties.

The submission that the defendants themselves have accepted the compromise, therefore, does not advance the case of the plaintiff-appellant. A statutory prohibition operates irrespective of the consent of the parties. If the substantive claim forming the foundation of the suit is barred by law, the agreement of the parties to settle that claim cannot have the effect of defeating the statutory prohibition. The learned Trial Court was consequently justified in examining the legality of the compromise notwithstanding the fact that both sides had accepted the same.

In view of the aforesaid discussion, this Court is of the considered opinion that the plaintiff-appellant’s claim, as pleaded and sought to be enforced in the suit, is founded upon the assertion of a beneficial ownership in respect of properties standing in the names of the defendants.

Resultantly, the prohibition contained in Section 4 of the Benami Act remains applicable. The compromise petition dated 05.12.2016, being founded upon the very claim which could not be legally enforced, could not have been recorded as a lawful compromise under Order XXIII, Rule 3 of the C.P.C. The learned Trial Court has, therefore, committed no error in rejecting the compromise petition and dismissing the suit as barred by law.

Thus, there is no infirmity in the impugned judgment and decree and the same does not require any interference by this Court. The point for determination is decided against the plaintiff-appellant and in favour of respondents. The impugned judgment stands affirmed.

The present first appeal is, accordingly, dismissed.

Pending, I.A.(s), if any, stands disposed of.

There shall be no order as to costs.