Full Judgment Text
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PETITIONER:
SMT. SURASAIBALINI DEBI
Vs.
RESPONDENT:
PHANINDRA MOHAN MAJUMDAR
DATE OF JUDGMENT:
27/10/1964
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
GAJENDRAGADKAR, P.B. (CJ)
AYYANGAR, N. RAJAGOPALA
CITATION:
1965 AIR 1364 1965 SCR (1) 861
ACT:
Benami transaction-Income-tax evaded-True owner-Right to
recover possession.
HEADNOTE:
The plaintiff (respondent) was employed at Calcutta in the
Court of Wards and the service rules did not permit him to
start or carry on any trade or business of his own. It was
therefore arranged with the defendant that the defendant
should be held out to be the owner of a boarding house the
suit property--of which the plaintiff was the true owner,
and the plaintiff was to be in possession as manager.
Plaintiff had to leave Calcutta on medical advice and he put
the defendant in possession on the understanding that on the
plaintiff’s return the defendant would hand over possession.
When the defendant refused to so hand over, plaintiff filed
the suit, for recovery of possession. His claim was decreed
by the trial Court and in appeal. , In appeal to the Supreme
Court, defendant’s successor in interest contended, that the
suit should have been dismissed because the plaintiff
admitted in his evidence, that he escaped payment of income-
tax by submitting a separate return for the salary earned by
him in service, and by showing that the business income from
the suit property belonged to the defendant; and that
therefore, the Court should not countenance his, claim and
assist him in obtaining possession of the suit property.
HELD (Per Gajendragadkar, C. J. and Shah J.) : It was not
the object of the parties at the time when the transaction
was entered into to circumvent or defeat the provisions of
the Income-tax Act. It is true that the plaintiff obtained
benefit of a lower rate of tax for the business income and
his personal income escaped taxation. But it cannot on that
account be held that the transaction on which he founded his
claim was unlawful. In claiming a decree for possession
from the defendant, the plaintiff did not plead any
invalidity of the transaction under which possession of the
business was entrusted to the defendant. The plaintiff., as
the owner of the business, was therefore not prevented from
enforcing his title against the defendant there being no
taint attached to the entrustment in the circumstances of
the case. [868 D-F, G]
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Per Ayyangar J.-The plaintiff having adopted the device of
purchasing the property benami in the name of the defendant,
for the purpose, even at the inception, of evading the
provisions of the Income-tax Act, would not be entitled to
recover possession of the property on the basis of his
title. But the plaintiff’s claim on the footing of
possession was not open to any objection because the basis
of his claim was independent and wholly dissociated from the
illegal transaction of the original benami purchase and fell
into line with the decision of the Privy Council in Sajan
Singh
v. Sardara Ali [1960] A.C. 167. [876 F; 882 D-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 158 of 1964.
Appeal by special leave from the judgment and decree dated
August 30, and September 2, 1963 of the Calcutta High Court
in appeal from Original decision No. 125 of 1960.
862
S. K. Hazara and P. K. Mukherjee, for the appellant.
G. S. Chatterjee and S. C. Mazumdar, for the respondent.
The Judgment of P. B. GAJENDRAGADKAR C.J. and J. C. SHAH J.
was delivered by SHAH J., AYYANGAR J. delivered a separate
Judgment.
Shah J. An action instituted by Phanindra Mohan Majumdar
hereinafter called ’the plaintiff’ on the original side of
the High Court of Calcutta for a declaration that he "is the
sole proprietor ,of and absolutely entitled to a boarding
house business carried on in the name and style of
International Home at 42, Harrison Road, Calcutta and for an
order for delivery of possession of the boarding house
business" was decreed by a single Judge of the High Court,
and the decree was confirmed in appeal under cl. 15 of the
Letters Patent by a Division Bench of the High Court.
Surasaibalini Debi a trustee appointed under a deed of
settlement dated August 23, 1952 executed by the defendant
Prabhendra Mohan Gupta her father, was impleaded as a party
on’ the death of the defendant has appealed to this Court
with special leave.
The case of the plaintiff set out in his plaint was that in
or ,about the year 1941 he took a lease of No. 42, Harrison
Road, ,Calcutta and had started a boarding house business in
the premises under the name and style of International Home,
that he conducted the business with his own funds which
belonged. to him absolutely from the date of its inception,
that he was personally managing the business and utilising
the profits thereof for his own purposes, that when he
started the business he was in the employment of the Court
of Wards and by the service rules governing the said
employment he was not permitted to start or carry on any
trade or business of his own and on that account it was
,arranged with the defendant Prabhendra Mohan Gupta--herein-
after called ’Gupta’-that the latter be held out as the
nominal owner of the said business and pursuant to that
arrangement the lease of the premises for the business was
taken in the name of Gupta and licences from the police and
the municipal authorities were also taken in the name of
Gupta, that from the very inception he was in possession and
management of the business and exercised all rights of
ownership over the same being absolutely entitled thereto,
that Gupta had never made a claim to title in the business,
that towards the end of the year 1948 he-the plaintiff-
suffered a serious illness and was advised to leave Calcutta
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temporarily, that on or about December 8, 1948 he entrusted
the management
863
of the business of the boarding house to Gupta with all its
assets on the understanding that upon his return to
Calcutta, Gupta would hand over to him possession and
management of the said business and of all papers, documents
and books of account relating thereto and render accounts of
the receipts and disbursements during the period of his
management, that in or about December 1949 he returned to
Calcutta and occupied one of the rooms in the boarding house
and called upon Gupta to hand over possession and management
of the business, and to return all papers, documents, books
of account relating thereto and to render accounts of the
management of the business by Gupta during his absence but
the latter wrongfully and in breach of the trust and
confidence reposed in him refused to hand over possession
and management of the business and moreover wrongfully
denied the plaintiff’s right, title and interest in the
premises and in the business.
Gupta by his written statement submitted that the business
was started by him with his own funds in premises obtained
on lease by him and that he had appointed the plaintiff as
his manager or agent in respect of the business. He
asserted that he was the real owner of the business, and
denied that the management of the business was entrusted to
him by the plaintiff when the latter left Calcutta an
account of his illness on December 8, 1948 or at any time.
He also denied that there was any understanding that Gupta
would hand ’over the management or possession of the
business to the plaintiff as alleged.
On these pleadings the only substantial issue raised by the
Trial Court was about the plaintiff’s title to the Boarding
House known as International Home. A subsidiary issue about
a claim for accounts of the business from Gupta was given up
at the trial and need not be considered.
On a review of the evidence the Trial Judge held that the
plaintiff had started the business of International Home
with his own funds and that the defendant Gupta was held out
as an ostensible owner of that business. In coming to that
conclusion the learned Trial Judge relied upon the following
circumstances. The plaintiff Majumdar was carrying on
business as owner of "Sunny lodge" a boarding house business
between the years 1938-41, and that business was closed in
or about February 1941 because the landlord of the premises
in which it was conducted obtained a decree-in-ejectment
against the plaintiff and compelled him to
864
vacate the premises. Thereafter tenancy was obtained of 42,
Harrison Road on May 1, 1941 and in July the International
Home was started and the furniture and utensils which were
used in the Sunny Lodge were used in the new business. The
case of Gupta that he had purchased the furniture and the
utensils from the plaintiff for a sum of Rs. 900 and had
started the business for himself ’Was disbelieved for the
reason that Gupta was always in straitened circumstances and
had often to borrow small surns of money from the plaintiff
who was at all material times gainfully employed. At the
commencement of the business, for diverse purposes such as
deposit with the landlord towards rent, provision for
furniture, utensils and other things for the boarding house
Rs.’ -4,000 were needed and this Gupta who was in
impecunious circumstances could not have procured. The
defendant’s sons Dwipendrla and Samaren were boarders in the
boarding house and had to pay charges to the boarding house
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for service rendered to them, whereas the members of the
plaintiff’s family boarded and lived in the boarding house
and no charges were levied from them. The plaintiff was
till December 1948 managing the boarding house ,exclusively
and all the earnings were taken by him. The defendant’s
story that payments were made to him by the plaintiff when
he visited Calcutta was unreliable. There were between the
years 1941 and 1948 no letters from the defendant to the
plaintiff which supported his case. that he was the owner or
that he was claiming -either to receive the profits of the
business or even asking for accounts. The defendant was in
the year 1941 a man of about 70 years of age and he had no
means to start a business. The books of accounts of the
business which admittedly were maintained bad been removed
by the defendant and he had failed to produce the same
before the Trial Court. The letters written by the defen-
dant after December 8, 1948 when the plaintiff was away from
Calcutta due to his illness gave detailed information to him
about the business and its progress. From time to time the
defendant had written letters asking the plaintiff to return
to Calcutta and take over the management of the business.
The Trial Court recognised that the lease of the premises in
which the business was carried on stood in the name of
Gupta, that the licences from the police and municipal
authorities for conducting the business were also in the
name of Gupta, that in the staff register- of the business
the plaintiffs name was shown as manager, ,that the
plaintiff submitted the returns for the purposes of income-
tax of the profits of the business in the name of Gupta and
he dealt with the authorities as if he was the manager and
not the
865
owner of the business. But these circumstances were, in the
view of the Trial Judge, consistent with Gupta being a
nominal owner of the business, whereas the other
circumstances were consistent with the plaintiff alone being
the owner of the business of International Home. In his
view the motive for holding out Gupta as owner was the
existence of the service rules which governed the plaintiff
when he was employed with the Court of Wards between the
years 1941 and 1944 and by virtue of which he was not
permitted -to conduct any business of his own. The
appellate Court agreed with the view of the Trial Court.
In this appeal with special leave this Court normally does
not seek to re-appreciate the evidence, and Concurrent
findings of the Courts below are not allowed to be re-opened
unless there are special circumstances justifying a
departure from that course. Counsel appearing on behalf of
the appellant has not seriously attempted to challenge the
finding of the Courts below on the first issue. But counsel
submitted that assuming that on the evidence it was
established that the real owner of the business was the
plaintiff, his suit must still fail, for the plaintiff had
with a view to circumvent the service rules of the Court of
Wards, entered into an unlawful agreement with Gupta and had
held out the latter as owner of the business, it being
settled law that the Court will not countenance the claim of
the plaintiff who was on his own admission guilty of an act
prohibited by law and assist him in obtaining possession of
the business. In addition, counsel submitted that the
arrangement for holding out Gupta as a nominal owner was
made between the plaintiff and Gupta to evade liability to
pay income-tax and thereby to defeat the provisions of the.
Income-tax Act and on that account also the agreement under
which the business was to be held by Gupta as a nominal
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owner was invalid and the plaintiff was not entitled to
claim possession of the business relying upon his own
unlawful conduct.
Before the Trial Court neither of these two pleas was
raised. In appeal the High Court pointed out that the
object of the arrangement whereby Gupta was held out as the
owner was to avoid the service rules of the Court of Wards,
but there was no evidence to prove that the service rules
which prohibited an employee of the Court of Wards from
carrying on business belonging to himself were statutory
rules. Disregard of the rules did not therefore necessarily
taint the arrangement with immorality or illegality and that
the plaintiff in suing to recover possession of his business
was not seeking to enforce an illegal arrangement. In the
view of
866
the High Court evasion of income-tax was again not the
object or the consideration for the arrangement.
The service rules were not tendered in evidence. It is not
disputed however that the service rules did not prohibit an
employee of the Court of Wards from carrying on a business
as a manager or agent of another. What was prohibited was
carrying on business as an owner. An arrangement which
facilitated conduct of a business, contrary to the rules, by
holding out a third person as a nominal owner of the
-business, was in the view of the High Court not illegal,
and no argument has been advanced before us challenging that
view. But the legality of the arrangement between the
plaintiff and Gupta was challenged on the ground that it was
intended or designed to circumvent the provisions of the
Income-tax Act. In support of this plea, there was no
pleading, no issue was raised about it, and this part of the
appellant’s case was not even relied upon before the Trial
Court. In this appeal Mr. Hazara for the appellants
submitted that on the admissions made by plaintiff in his
evidence the Court was bound to non-suit him. In his
evidence before the Court the plaintiff admitted that he had
submitted returns of income earned in the business for the
years 1943, 1944, 1945 and 1946 and assessment of tax was
made in the year 1947 and on demand by the Income-tax
Officer he had filed an affidavit stating that he was a
manager of the business. Plaintiff also admitted that when
called upon he had submitted a separate personal return for
the salary earned by him, but that income was not taxed and
tax was assessed on the business income as if it belonged to
Gupta. The plaintiff also admitted that his object in
filing the affidavit was to get rid of tax liability on his
personal income.
By the device of making an untrue statement the plaintiff
has undoubtedly evaded tax. The plaintiff was earning
salary as an employee of the-Court of Wards and had
presumably some other income which in the aggregate amounted
to Rs. 1,800 per annum. If the business of International
Home was disclosed as belonging- to the plaintiff, the
aggregate of the personal and business income was liable to
be charged to tax under the Income-tax Act, 1922. By the
expedient of holding out the defendant as an ostensible
owner of the business the plaintiff evaded liability for
payment of tax on his personal income and even tax on the
business income was charged at a lower rate. But on that
account we are unable to hold, disagreeing with the High
Court, that the object in entering into the arrangement for
holding out Gupta as owner of the business was to evade
payment of income-tax.
867
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As found by the Courts below the purpose of the arrangement
was to circumvent the service rules. It is true that having
started the business in the name of the defendant, the
plaintiff was able to evade payment of tax, which if the
true state of affairs was known, he would have been liable
to pay. The plaintiff might have incurred penalties by
failing to disclose the true state of affairs, he may also
be liable for that conduct to be proceeded against under the
provisions of the Income-tax Act or under the Indian Penal
Code. We are, however, unable to hold that from the
inception the object of the arrangement was to enter into an
unlawful arrangement.
The plaintiff’s case was that he was in management and
possession of the business as owner till December 1948 when
he left Calcutta after entrusting the management of the
business to Gupta, subject to the understanding that the
possession and management of the business was to be restored
to the plaintiff when he returned to Calcutta and sought to
resume management. There is nothing illegal in such a
contract. The plaintiff’s cause of action as set out in the
plaint was that he sought to obtain possession of the
business which belonged to him, and which he had entrusted
to his agent or trustee. Gupta denied that he was an agent
or trustee of the plaintiff, and set up title to the
business and claimed that he was not liable to return the
business. Once the plea of Gupta that he was the owner of
the business failed, there was no other defence which could
be held out against the plaintiff’s claim. It is true that
if the plaintiff seeks the assistance of the Court to
effectuate an unlawful transaction, the Courts will refuse
to assist him. Where, however, the plaintiff is seeking to
enforce his title to property and it is not an integral part
of his pleading which her must prove to entitle him to
relief that there was between him and the defendant an
unlawful transaction or arrangement which he seeks to
enforce, the plaintiff will be entitled to the assistance of
the Court, even if the initial title of the plaintiff is
rooted in an illegal transaction.
On the finding of the High Court the proved object for the
arrangement to hold out Gupta as owner of the business, is
not shown to be in fraud of the public administration, and
the alternative object suggested by counsel for the
appellant is not proved. It is unnecessary therefore to
enter upon a discussion of the authorities which make a
distinction between claims in which a party to an action has
to rely essentially upon a conspiracy to effectuate an
illegal or fraudulent purpose, to support his claim to the
property transferred to or held out in the other party’s
name,
2 Sup./65-12
868
and claims in which the unlawful or unworthy object is
fulfilled, the property is owned by the claimant, and the
claimant, seeks the assistance of the Court not to
effectuate his unlawful purpose, but in substance to enforce
his title by a plea in detinue under a transaction which is
not tainted by illegality. A.R.P.L. Palanianna Chettiar v.
P.L.A.R. Arunasalam Chettiar(1) illustrates the former
principle. In that case the Judicial Committee declined to
assist the enforcement of a claim in fraud of the public
administration in Malaya, because the plaintiff had of
necessity to disclose before he could obtain a decree for
restoration of his property transferred to the defendant
that he had practised deceit on the public administration.
Sajan Singh v. Sardara Ali (2 ) illustrates ,the other
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principle. In that case the Court’s assistance was given to
the plaintiff to restore to him his property of which he was
wrongfully dispossessed by the defendant, even though title
to the property was acquired by the plaintiff by an unlawful
transaction, between the defendant and the plaintiff.
In the present case as we have already observed, it was not
the object of the parties at the time when the transaction
which is called in the High Court benami was entered into to
circumvent or to defeat the provisions of the Income-tax Act
by taking advantage of the fact that the business stood in
the name of Gupta. It is true that -the plaintiff obtained
benefit of a lower rate of tax for the business income and
his personal income escaped taxation. But it cannot on that
account be held that the transaction on which he founded his
claim was unlawful. In claiming a decree for possession
from the defendant the plaintiff did not plead any
invalidity of the transaction under which possession of the
business was entrusted to Gupta. He merely pleaded his
title to the business, entrustment thereof to Gupta and
refusal on the part of the latter to deliver possession when
demanded. On the findings recorded by the Trial Court as
well as by the High Court the plaintiff’s title is proved.
Entrustment of the business when the plaintiff left Calcutta
in 1948 is also established by the evidence, and Gupta has
admittedly refused to deliver possession when demanded. The
plaintiff as the owner of the business was in the
circumstances not prevented from enforcing that title
against Gupta, there being no taint attaching to the
entrustment.
The appeal therefore fails and is dismissed. Having regard
to the circumstances of the case, we make no order as to
costs.
(1) L.R. [1962] A.C. 294.
(2) L.R. [1960] A.C. 167.
869
Ayyangar J. I agree with the order proposed by my learned
brother Shah J. that the appeal fails and should be
dismissed as also in regard to the order for costs. As,
however, I am unable to agree with certain of the findings
recorded by my learned brother propose shortly to state my
reasons for the decision.
The facts of the case have all been set out in the judgment
just now pronounced and it is needless for me to repeat
them. The main point in controversy in the suit was as to
whether Phanindra Mohan Majumdar the respondent, who was the
plaintiff in the suit out of which this appeal arises, had
established that he was the proprietor of the Boarding House
carried on in the name and style of "International Home" at
42, Harrison Road, Calcutta. That property admittedly stood
under the registered conveyance in the name of his
father-in-law, defendant Gupta and that business was also
conducted by the defendant. The case set up by the respon-
dent was that the purchase of the property was with his
funds and that the defendant-Gupta was merely a benamidar.
The evidence on this point was examined elaborately by the
learned Single Judge at the trial and by the Division Bench
on appeal and they concurrently found that the defendant-
Gupta was merely a benamidar for the respondent and that the
purchase of the property in the name of the defendant and
the carrying on of the hotel business by the defendant was
really on behalf of the respondent. That finding was not
challenged before this Court and does not, therefore,
require any examination.
Accepting that finding, however, two questions were raised
by the learned Counsel for the appellant. One was that the
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purpose for which this benami transaction was entered into
by the respondent was, on his own case, to circumvent the
Service Rules of the Court of Wards of which he was an
employee. Though no argument based upon the effect of this
admission was urged before the learned trial Judge, the
question whether the respondent was entitled to maintain the
suit for the recovery of possession from the defendant
having regard to this object of the benami transaction viz.,
to evade the Service Rules of the Court of Wards and in view
of the circumstance that object had been achieved, was
raised before the Division Bench. The learned Judges,
however, rejected the contention by pointing out that those
Rules were not shown to be statutory and, in fact, the Rules
themselves were not before the Court. In those
circumstances, they considered that a breach of the rule or
an attempt to evade it would not necessarily make the
transaction unlawful so as to preclude the respondent from
recovering the property title to which he had established.
Learned Counsel
870
for the appellant repeated this argument before us but I
agree that it is not tenable having regard to the state of
the evidence
and to the fact that the Rules were not statutory.
There was, however, another illegality which came out in the
course of the evidence of the respondent and which, it was
submitted, was another object for which the property was
purchased in the name of the defendant--Gupta which requires
more serious attention. This relates to the claim of the
appellant that it had been established that the object of
putting the property benami in the name of the defendant-
Gupta was to evade income-tax and that as a matter of fact,
the tax liability for certain of the years of assessment had
thereby been successfully evaded by the respondent.
The evidence in relation to this matter was this : The suit
property was purchased and the Boarding House business was
started in 1941, so that from the calendar year 1942 onwards
i.e., from the assessment years 1943-44 onwards the
respondent if the beneficial owner would have been liable to
income tax on the income derived from the hotel business.
During this period the respondent was also employed in the
Court of Wards, so that he would have been liable to income
tax on the aggregate of the incomes he was receiving from
these two sources. In respect of the assessment years 1943-
46 he received in 1947 a notice calling upon him to submit
returns on the basis that he was the real owner of the
International Home, 42, Harrison Road, The respondent then
asserted that the property and the business did not belong
to him, but to the defendant Gupta and that he was merely a
manager under Gupta. In connection with this assertion to
the Income-tax department he swore two affidavits one in
December 1947 and the other in January 1948, before the
Presidency Magistrate, Calcutta which contained these
representations. In his cross-examination respondent’s
attention was drawn to the affidavits and to their contents
and his answer was this :
A. "Then I was charged with the amounts as
I was asked by the Income-tax Officer to file
an affidavit. Then I made the first affidavit
which is here in the file. I showed him my
first affidavit whereupon the Income-tax
Officer told me something. Pursuant to that I
told him, ’I rejected the first affidavit and
made a second affidavit which was accepted by
them’.-(In the second affidavit dated January
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31, 1948 he stated: ’I am an employee under
Gupta-proprietor of International ’Home, 42,
871
Harrison Road, Calcutta. I have been working
there as manager since July 1941 and my
monthly salary varied from Rs. 25 to Rs. 150
from my last appointment to this date).......
Then I stated that my money was not taxable
because it amounted only to Rs. 1,800 and I
asked them to exempt me and accordingly I was
exempted from paying the income tax.
Court Question : Do I understand that in 1947
and 1948 your object of filing this affidavit
was to get rid of the income-tax liability if
possible so far as you are personally
concerned ?
A : That is so."
On the basis of this clear admission it was urged before the
learned Judges of the Division Bench that the respondent
made the purchase in the name of the defendant--Gupta really
to evade income tax which he would have been liable to pay
if the property and business had stood in his own name and
that as he had successfully evaded the payment of income tax
and had thus achieved his unlawful object, the Court would
not permit him to assert title to the suit property and
would not lend its aid to enable him to recover possession
of his property. The learned Judges, however, rejected this
submission for two reasons : (1) that the defendant had not
pleaded this illegality in the written statement and was not
therefore entitled to urge this as a ground for non-suiting
the plaintiff; (2) That the evidence and the admission I
have extracted, did not establish that the object of the
respondent in effecting this purchase benami in the name of
the defendant was, at its inception, to evade income-tax.
In other words, the learned Judges considered that it had
not been proved that at the inception of the purchase the
object was to evade income tax, but that the respondent
merely availed himself of the opportunity afforded by the
benami purchase to evade tax when the same was sought to be
livid on him some 5 or 6 years after the date of the
original purchase.
Learned counsel for the appellant challenged this reasoning
and submitted that the learned Judges had not approached the
question correctly.
First as to the point that in the absence of a pleading the
defendant was not entitled to rely on the taint of
illegality in the transaction for persuading the Court to
refuse relief to the plaintiff; I see force in the
submission of learned Counsel for the appellant an this
question. The law on this point as to pleading is quite
872
clear and has been stated in decisions of the highest
authority on several occasions and it is sufficient to
summarise the underlying principles. Where a contract or
transaction ex facie is illegal there need be no pleading of
the parties raising the issue of illegality and the Court is
bound to take judicial notice of the nature of the contract
or transaction and mould its relief according to the circum-
stances. The case before us is, not however, of that type.
Even where the contract is not ex facie legal "if the facts
given in evidence clearly disclose the illegality the Court
is bound to take notice of this fact even if not pleaded by
the defendant" (Per Lindley L.J. in Scott v. Brown(1). The
enunciation of the law on this point by Devlin J. in Edler
v. Auerbach (2) though more elaborate and summarising the
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principles formulated by the House of Lords in North-Western
Salt Company Ltd. v. Electrolytic Alkali Company Ltd. (3)
does not contradict the statement by Lindley L.J. In the
case on hand there is a clear admission by the respondent
himself of the facts on which illegality is sought to be
made out. The affidavits which he swore for. the purpose of
evading the liability to tax are before the Court and in the
circumstances I consider that it is clearly established that
the object of the respondent was to evade the payment of
income-tax.
The other ground on which the learned Judges rejected this
plea of illegality was that there was no proof that the
object which the respondent sought to achieve by the benami
was not proved to have been the evasion of income-tax.
Counsel for the appellant contended that the approach of
learned Judges of the High Court to this question was not
realistic and that their finding was not correct.
I see considerable force in this submission also. It was
really an accident that the notice in respect of income-tax
as regards the income from this property and business came
to be issued to the respondent in 1947 or thereabouts.
Unless one proceeded on the assumption that the respondent
was not aware that income-tax was payable on income from
property or business, he could obviously have acted only on
the footing that the defendant Gupta as the apparent owner
of the property would alone be made, liable for the payment
of the tax. In these circumstances it appears to me to be
clear that the object of the transaction of benami was even
in its inception to ensure that there was no aggregation of
the income from the property and the hotel business
(1) [1892] 2 Q.B. 724 at 729. (2) (1950] 1 K.B. 359, at P.
371.
(3) [1914] A.C. 461.
873
with the salary or other remuneration which he was getting
from the Court of Wards.
The question next to be considered is the effect of the
object of the benami being to evade the provisions of a
revenue law like the Income Tax Act. Now s. 23 of the
Indian Contract Act enacts that the consideration or object
of an agreement is lawful "unless it is forbidden by law or
is of such a nature that if permitted, it would defeat the
provisions of any law". On what I have stated earlier, the
object of the agreement being to defeat the provisions: of
the Indian Income Tax Act would certainly not be lawful.
In this connection I might briefly refer to the decision in
Emery v. Emery(1). It was an action by the husband seeking
to recover from the wife one half of certain securities
which the husband had purchased in the name of the wife.
The finding was that the bonds, a moiety of which was sought
to be recovered were held in the name of the wife as trustee
for the wife and husband in equal shares so far as the
beneficial interest was concerned. Wynn-Parry J. considered
the evidence as to why the securities were purchased in the
name of the wife -and why there was a complete absence in
the documents of any reference to the husband having any
beneficial interest in those securities. The evidence led
before the Court disclosed that under the law of the United
States, where the dividends on the bonds were payable if the
payment was to a non-resident alien the recipient would be
liable to a withholding tax. The husband was a non-resident
alien and if his beneficial interest was disclosed the
dividend payable in respect of this investment would have
protanto suffered the deduction of tax, while the wife being
an American would not have been so liable. The question
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that was raised before the learned Judge was whether in
those circumstances the husband could assert his title to
the moiety of the securities to which he claimed beneficial
interest. The learned Judge dismissed the action holding
that as the securities were put in the name of the wife in
order to evade the law the husband who did not come before
the Court with clean hands could not claim his title and
that the property should lie where it was. The main
argument raised was that a breach of a Revenue law of a
foreign country stood on a footing different from an attempt
to evade a law of the United Kingdom and this was negatived.
We are not, however, concerned with that problem, because
here what was intended to be circumvented by means of this
device was the Indian Income Tax Act. That
(1) [19591] Ch. 410.
874
an agreement to defraud Revenue is manifestly illegal is
beyond dispute but if authority were needed I might refer to
Milkr v. Karlinski(1) and Alexander v. Rayson (2) -(see
Cheshire and Fifoot on Contract, 5th ed. 286).
No doubt, for the purpose of deciding whether property could
be recovered by the assertion of a real title there is a
clear distinction between cases where only an attempt to
evade a statute or to commit a fraud has taken place and
cases where the evasion or the fraud has succeeded and the
impermissible object has beep achieved. The leading
decision upon this point is that of’ the Privy, Council in
Petherpermal: Chetty, v. Muniandi Servai(3) where Lord
Atkinson dealing with the effect of benami conveyances which
are motivated by the design to achieve an illegal or fraudu-
lent purpose, quoted from Mayne’s Hindu Law (7th ed. p. 595,
para 466) the following as correctly setting out the law :
"Where a transaction is once made out to be a
mere benami it is evident that the benamidar
absolutely disappears from the title. His
name is simply an alias for that of the person
beneficially interested. The fact that A has
assumed the name of B in order to cheat X can
be no reason whatever why a Court should
assist or permit B to cheat A. But if A
requires the help of the Court to get the
estate back into his own possession, or to get
the title into his own name, it may be very
material to consider whether A has actually
cheated X or not. If he has done so by means
of his alias, then it has ceased to be a mere
mask, and has become a reality. It may be
very proper for a Court to say that it will
not allow him to resume the individuality
which he has once cast off in order to defraud
others. If, however, he has not defrauded any
one, there can be no reason why the Court
should punish his intention by giving his
estate away to B, whose roguery is even more
complicated than his own...... For instance,
persons have been allowed to recover property
which they had assigned away. . . . where they
had intended to defraud creditors, who, in
fact were never injured...... But where the
fraudulent or illegal purpose has actually
been effected by means of the colourable
grant, then the maxim applies, ’In pari
delicto potior est conditio possidentis’. The
(1) 62 T.L.R. 85.
(3) [1908] L.R. 35 1. A. 98.
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(2) [1930] 1 K.B. 169.
875
Court will help neither party. ’Let the estate lie where it
falls’."
I might point out that later decisions both of the Indian
High Courts and of the Privy, Council have all proceeded on
the acceptance of the principles which Lord Atkinson
formulated in Petherpermals case. (1)
Pausing here, it might be pointed out that exactly the -same
conclusion has been reached by the Courts in England where a
benami transaction was entered into. for the purpose of de-
frauding creditors. It is hardly necessary to add that the
position in England under which a resulting trust is deemed
to arise when a purchase is made in the name of another with
one’s own money and without an intention of conferring on
him a beneficial title is identical with the law as to
benami in India. In Gascoigne v. Gascoigne (2 ) a husband
took a lease of lands in his wife’s name and built a house
upon it with his own money. The reason why he entered into
this type of transaction was that he was in debt and was
desirous of protecting his property from his creditors. He
then brought an action against the wife for a declaration
that she held the property as trustee for him. The husband
succeeded in the County Court. On appeal to the Divisional
Court, Lush J. allowing the appeal stated that it was proved
that the plaintiff was guilty of a fraud upon the law to
evade and disappoint the provision of the legislation and he
could not come in equity to be relieved against his own act,
though the defence also was dishonest, and in the
circumstances, the Court would say, "Let the estate lie
where it falls".
Learned Counsel for the respondent submitted that the
English decision just now referred to as well as Emery v.
Emery(3) proceeded upon the peculiarity of the English law
in which there is a presumption of an ’advancement but that
as there was no such presumption in India the position would
be different where the Court has to deal with the effect of
benami transactions brought about in order to effectuate a
fraud or to evade the provisions of a statute. I do not.
however, think that could make any material difference. We
start with the position that the Court will presume an
ostensible title to be the real title unless a plaintiff who
seeks to assert the contrary pleads and proves that the
ostensible owner is not the real owner. In other words, the
onus is on the person who alleges a transaction to be benami
to make
(1) [1908] L. R. 35 I.A. 98.
(2) [1918] 1 K.B. 223.
(3) [1959] 1 Ch. 410
876
it out. Of course, the source of the funds from which the
purchase is made coupled with the manner of its enjoyment
would be a very material factor for establishing the case of
benami but the mere proof of the source of the purchase
money would not finally establish the benami nature of the
defendant’s title. Even where the plaintiff purchases
property with his own funds in the name of ’B’ the
surrounding circumstances, the mode of enjoyment might still
indicate that it was intended to be a gift to ’B’ and it
would then not be a case of benami notwithstanding that the
purchase money did not proceed from the defendant. There-
fore as observed in Mayne’s Hindu Law (Eleventh Edn.1) page
876.
"While the source from which the money came is
undoubtedly a valuable test, it cannot be
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considered to be the sole or conclusive
criterion. For, the question whether a
particular transaction is benami or not, is
one of intention and there may be other
circumstances to negative the prima facie
inference from the fact that the purchase
money was supplied by or belonged to another.
The position of the parties, their relation to
one another, the motives which could govern
their actions and their subsequent conduct may
well rebut the presumption."
Even where the benami is established effect will not be
given to the real title if the result of doing so would be
to violate the provisions of a statute or to work a fraud
upon innocent persons -Gur Narayan v. Sheo Lal Singh(1). On
this reasoning it would prima facie appear to follow that
the respondent having adopted this device of purchasing the
property benami in the name of his father-in-law for the
purpose of evading the provisions of the Indian Income Tax
Act would not be entitled to recover the property on the
basis of his title.
Two points were made by the learned counsel for the
respondent for avoiding this result. In the first place, he
submitted that the respondent had instituted the suit and
was seeking relief on the basis of his proprietary interest
in the property and that as he did not, in fact, plead nor
was it necessary for him to plead the illegality of the
transaction in order to sustain his title to the property,
he was not precluded by reason of the illegality established
from succeeding in the suit. For this purpose learned
Counsel relied upon the principle laid down by the Court of
(1) [1918] L.R. 46 I.A.I.
877
Appeal in Bowmakers v. Barnet Instruments(1) and of the
Privy Council in Sajan Singh v. Sardara Ali(2). It is not
necessary to narrate the facts of Bowmakers’ case(3) in
detail and it would be sufficient to extract the head-note
for the purpose of understanding the ratio of the decision:
"No claim founded on an illegal contract will
be enforced by the court but as a general rule
a man’s right to possession of his own
chattels will be enforced against one who
without any claim of right, is detaining them,
or has converted them to his own use, even
though it may appear from the pleadings, or in
the course of the trial, that the chattels in
question came into the defendant’s possession
by reason of an illegal contract between
himself and the plaintiff, provided that the
plaintiff does not seek, and is not forced,
either to found his claim on the illegal
contract, or to plead its illegality in order
to support his claim."
It is perhaps not irrelevant to notice that the illegality
which was there pleaded as a defence to the claim for
damages for conversion of certain machine tools which was
the property of the plaintiffs was the contravention of an
executive order under the Defence Regulations regarding the
maximum price that might be charged. There was besides a
finding that neither the plaintiffs nor the defendants had
any knowledge of the order, so that if they erred’ the error
was involuntary. These form the background in which the
decision has to be appreciated. The defendant, however,
contended that the ignorance was immaterial and that as the
order of the Minister rendered any violation of its,
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provisions criminal the parties must be deemed to have been
engaged in a criminal conspiracy and that the defendants
were therefore entitled to retain the machine tools which
were with them on hire without returning them to the bailor.
Du Parcq L.J. who delivered the judgment of the Court, after
quoting the maxim "In pari delicto" on which the defence was
based, observed:
"The Latin maxim must not be understood as
meaning that where a transaction is vitiated
by illegality the person left in possession of
goods after its completion is always and of
necessity entitled to keep them. Its true
meaning is that, where the circumstances are
such that the Court will refuse to assist
either party, the
(1) [1945] 1 K.B. 65.
(2) [1960] A.C. 167.
878
consequence must, in fact, follow that the
party in possession will not be disturbed. As
Lord Mansfield said, the defendant then
obtains an advantage ’contrary to the real
justice’, and, so to say, ’by accident’," and
finally added :
"We are satisfied that no rule of law, and no
considerations of public policy, compel the
court to dismiss the plaintiff’s claim in the
case before us. and to do so would be, in our
opinion, a manifest injustice."
In view of these observations, I am unable to hold that the
decision is authority for the position that a suit for ion
on the basis of title could never be dismissed even if the
object for which the transfer was effected was illegal and
that object has been achieved. The maxim ex turpi causa non
oritur actio is still a rule of law and property transferred
under a contract which is illegal or to achieve an illegal
object where the object has, been achieved cannot be
recovered for the reasons that the court will not lend its
aid to such a plaintiff. In other words, I do not read the
decision in Bowmaker’s case(1) as contradicting what was
stated by Lord Atkinson in Petherpermal’s case(2) extracted
earlier.
There is one feature regarding the facts in Bowmaker’s(1)
case to which attention might be drawn. The plaintiff there
had delivered the machine tools to the defendants under
three hire purchase agreements which were illegal. The
defendants had sold the tools delivered under two of the
agreements and refused to redeliver those under the third
which were still in their So far as the claim related to
those covered by the two agreements wherein the defendants
had parted with the goods Cheshire & Fifoot on the Law of
Contract* explain the decision thus :
"The significant feature of the wrongful sales
was that they constituted an act of conversion
that ipso facto terminated the bailment. The
plaintiffs might therefore argue that, unlike
the case of pledge in Taylor v. Chester which
was still in existence at the time of the
action, there was here no longer any existing
contract upon which the defendants could found
a possessory right. The right to immediate
possession had automatically revested in the
plaintiffs. Could it not thus be said, as in
the case of an illegal but expired lease, that
owing to the termination of the bailment the
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plaintiffs had an
(1) (1945) 1 K. B. 65.
(2) [1908] L.R. 35 1. A. 98.
879
independent cause of action in virtue of their
admitted ownership?........ It was completely
irrelevant that the chattels had originally
come into the possession of the defendants by
virtue of the illegal contract. That contract
was now defunct. It formed no part of the
cause of action. Thus, with the disappearance
of the only transaction that could restrict
their rights, the plaintiffs could base their
claim to possession solely upon their
ownership of the chattels."
As regards the other agreement where the goods were still
with the defendant the same authors say:
"In the case of this agreement the cause of action
was the refusal of the defendants to comply with
the demand for the return of the chattels.
Since effective possession had passed to the
defendants by virtue of the contract,
the sole justification for this demand was
their failure to pay the agreed installments.
The plaintiffs, therefore, were inevitably
driven back to the contract in order to prove
the amounts of the installments, the dates at
which they were due and the agreed effect of
their non-payment. This part of the case
would therefore seem to be on as fours with
the action by a lessor to enforce the
forfeiture of the lease for condition broken.
This difficult decision turned upon the effect of a bail-
ment. It would seem, however, that if the ownership of a
chattel, as distinguished from a mere possessory right, were
to be transferred under an illegal contract, it would remain
perpetually irrecoverable. In such a case the transferor
would have no title irrespective of the illegal transaction.
His only mode of obtaining relief would be to terminate the
contract under which he purported to transfer title to the
defendant, and he could not take proceedings for this
purpose without showing that he was particeps criminis."
I consider these remarks correctly set out the difficulties
created by the decision and its true ratio.
Sajan Singh’s case(1) was concerned with the right of the
plaintiff who was a lorry driver who could not, under the
then existing regulations of Malaya, obtain a lorry. The
defendant,
(1) [1960] A.C. 167.
880
on the other hand, was one who was qualified to purchase a
lorry and accordingly an arrangement was entered into
between the plaintiff and the defendant under which a lorry
was to be acquired by the plaintiff to be registered in the
name of the defendant with a permit in his own name but the
intention being that it should belong to the plaintiff and
to be used by him on his own account. The result was that
the lorry belonged to the plaintiff but was operated in the
name of the defendant. After the parties fell out and
correspondence was passing between them, the defendant, one
day, entered the plaintiff’s house when the latter was
absent and took away the lorry which he refused to return
claiming that it belonged to him. The plaintiff then
brought the suit out of which the appeal before the Privy
Council arose, for a declaration that he was the owner and
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for return of the lorry and for damages etc. The claim,
thus, before the Court was in retinue and Lord Denning who
spoke for the Board emphasised this aspect observing :
"In detinue their Lordships think he
succeeded. Although the transaction between
the plaintiff and the defendant was illegal,
nevertheless it was fully executed and carried
out: and on that account it was effective to
pass the property in the lorry to the
plaintiff....... Me plaintiff had actual
possession of the lorry at the moment when the
defendant seized it. Despite the illegality
of the contract, the property had passed to
him by the sale and delivery of the lorry.
When he commenced this action, he had the
right to immediate possession. Their
Lordships think that in these, circumstances
he had a claim in detinue."
It would thus be seen that besides the claim based on his
title to the lorry, the plaintiff had also established that
while the chattel was in his possession, the defendant had
unlawfully taken it away, without his consent. Insofar as
his claim was based on this deprivation of possession, it
was really an independent cause of action wholly separated
from the original purchase of the lorry which was to
circumvent the law, and as to this claim in detinue there
was no question of its being tainted with any illegality.
Besides this, Lord Denning himself pointed out that there
were many cases which showed that where a transfer of
property was effected in order to achieve an illegal purpose
and that purpose was achieved, the plaintiff was disabled
from recovering the property for the reason that the Court
will not assist him in that endeavour.
881
Pausing here, I need only add that there is no question here
of the legislation whose avoidance or contravention stamps
the transaction as illegal being one enacted for the
protection of persons like the plaintiff. Such was the case
of Amar Singh v. Kulubya(1) where the principle explained in
Kearley v. Thomson (2) by Fry L.J.
"In these cases of oppressor and oppressed, or
of a class protected by statute, the one may
recover from the other, notwithstanding that
both have been parties to the illegal
contract."
as an exception to the rule in pari delicto potior est
canditio possidentis was applied.
Two questions thus arise which have to be separately con-
sidered: (1) If nothing more had happened in this case than
that the respondent had purchased the property benami in the
name of the defendant-Gupta can the respondent lay claim to
possession of the suit property based upon the fact that the
purchase money came from him notwithstanding the illegal and
unlawful purpose which he sought to accomplish by that
transaction and which he succeeded in achieving; (2) Whether
the respondent can rest his claim to recover possession of
the property on a title wholly independent of the benami
purchase which is tainted with illegality. The answer to
the first question would depend upon whether he can assert
title to the property, decors the illegal object which he
achieved by purchasing the property benami in the name of
the defendant-Gupta. Prima facie the answer would appear to
be in the negative on the principle laid down by Lord Atkin-
son Petherpermal v. Muniandi(3) already cited. Learned
Counsel for the respondent, however, submitted that under
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the Indian law though the onus of establishing that a
transaction is benami is on the person who so asserts it and
that unless this is strictly made out the ostensible title
would prevail, but when once the plaintiff establishes that
the consideration proceeded from him, the onus shifts to the
defendant to establish that the transaction was not benami
and that a beneficial interest was intended to pass to him.
I do not consider it necessary to finally decide this point
on which turns the question as to whether the respondent is
entitled to succeed on the basis of his title notwith-
standing the illegality attending the transaction, though it
must be pointed out that if the object which the parties
have in view
(1) [1963] 3 W.L.R. 513. (3) [1908] I-R. 35 1. A. 98.
(2) 24 Q.B.D. 742.
882
cannot be carried out unless a real title passed to the
defendant the presumption arising out of the consideration
proceeding from the plaintiff would be over-borne. I say it
is not necessary to pronounce upon this difficult question
because in the present’ case the respondent’s claim to
possession is based not merely on the basis of his title
emerging from the source of purchase money for the
acquisition of property but also on an alternative ground
and this is the second of the grounds on which the
respondent rested his claim to recover possession, and that
was as follows.
While the respondent himself was in phvsical Possession of
the property he had to leave Calcutta on medical advice in
or about December 8, 1948 and at that date he put the
defendant Gupta into possession on the understanding that on
the respondent’s return to Calcutta the defendant would hand
over to the plaintiff possession of the premises and the
management of the business. The respondent further stated
that he returned to Calcutta in or about December, 1949 and
occupied one of the rooms of the suit property and made
demands on the defendant to hand over possession and
management which he failed to do. This case of the
respondent has been concurrently found to be true by both
the Courts. It would be seen that the basis of the
respondent’s claim to possession is independent of and
wholly dissociated from the illegal transaction of the
original benami purchase and falls into line with Sajan
Singh’s case(1). Not being tainted with illegality, the
respondent’s claim on this footing is not open to objection
and as it has been upheld by both the Courts I agree that
the appeal should stand dismissed and also to the order for
costs proposed by my learned brother.
Appeal dismissed.
(1) [1960] A. C. 167.
883