Bar On Raising Benami Defense Under Section 4 Applies To All Suits Filed After 1988 Act, Even For Past Transactions: Allahabad High Court

In a latest judgement, Allahabad High Court (Lucknow Bench has held that the bar under Section 4 of the Prohibition of Benami Property Transactions Act, 1988, applies to all suits filed after the commencement of the Act, regardless of whether the underlying transaction took place before 1988. A bench of Justice Ram Manohar Narayan Mishra observed that while the penal provisions of the Act may not be retrospective, the procedural bar against claiming to be the "real owner" of a benami property is absolute for any litigation initiated after the law came into force.

The dispute involved a residential house in Lucknow purchased in 1977 in the names of two brothers (the plaintiffs). A third brother (the defendant) occupied a portion of the house and subsequently claimed to be the real owner, asserting that he had provided the funds for the purchase while his brothers were students. The plaintiffs filed a suit in 2000 seeking a mandatory injunction for his eviction, characterizing him as a mere licensee. Both the trial court and the first appellate court decreed the suit in favor of the plaintiffs, leading to this second appeal.

The primary question before the court was whether the prohibition contained in the Benami Property Transactions Act, 1988, has retrospective operation and whether the plea of a benami transaction is barred under Section 4 of the Act for a 1977 transaction. The court was also called upon to determine if the findings of the lower courts, regarding the defendant's status as a licensee rather than a co-owner, were perverse in law.

Interpretation Of Section 4 Regarding Pending And Future Litigation

The Court analyzed the scope of Section 4(1) and 4(2) of the Act, which prohibits suits or defenses based on any right in property held benami. The bench noted that while Section 3 (the prohibition of entering into benami transactions) is prospective, Section 4 operates as a "sweep" that engulfs past transactions when they are brought before a court after the Act's commencement.

The Court emphasized that the legislature intended to make benami transactions unenforceable. It observed that the moment a property is found to be held benami, the real owner is deprived of a defense against the person in whose name the property stands. This ensures that the person claiming to be the real owner cannot recover the property from the benamidar through legal proceedings initiated after May 19, 1988.

Impact Of The 2016 Amendment And Supreme Court Precedents

Addressing the impact of the 2016 Amendment, the High Court relied on the Supreme Court’s landmark ruling in Union of India v. Ganpati Dealcom Pvt. Ltd. (2023). The bench noted that the Supreme Court had declared Section 3(2) of the unamended 1988 Act unconstitutional for being manifestly arbitrary. However, the Court clarified that the procedural rigors of Section 4(2) continue to have limited operation.

Specifically, the Court held that no defense shall be allowed in any suit or action on behalf of a person claiming to be the real owner if such property is held by another person. Since the present suit was filed in the year 2000, well after the 1988 Act came into force, the defendant was legally prohibited from raising the plea that he was the actual provider of funds for the 1977 sale deed.

"No defense shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property against the person in whose name the property is held."

Absence Of Fiduciary Relationship Or Joint Family Funds

The Court further examined the exceptions provided under the Act, specifically where the property is held by a coparcener in a Hindu Undivided Family (HUF) or by a person in a fiduciary capacity. The bench found that the defendant failed to prove that the property was purchased from joint family funds or that the named owners stood in a fiduciary capacity toward him.

It was observed that the defendant's father (PW-1) had categorically testified that he purchased the house using his own earnings as a freedom fighter and pensioner for the benefit of the two sons named in the deed. The defendant, who was already employed at the time, could not establish that he provided the consideration money, especially given his modest salary in 1977 compared to the sale price.

Concurrent Findings On Licensee Status Upheld

The High Court noted that the trial court and the first appellate court had recorded concurrent findings of fact that the defendant entered the premises in 1980 as a licensee. This entry was facilitated by the father to accommodate the defendant upon his transfer to Lucknow. The court held that such a licensee has no independent title and must vacate upon revocation of the license.

The bench reiterated that under Section 100 of the CPC, the High Court cannot interfere with concurrent findings of fact unless they are palpably perverse or outrage the conscience of the court. In this case, the evidence of the father and the municipal records consistently supported the plaintiffs' ownership.

"The occupation of defendant-appellant in said house... was that of the licensee and not in the capacity of co-owner and after revocation of the license... the occupation has become unauthorized."

The High Court concluded that the defendant’s plea of being the real owner was barred by Section 4 of the 1988 Act. Furthermore, the defendant failed to prove the existence of a joint family fund or his own contribution to the purchase. Finding no perversity in the lower courts' judgments, the High Court dismissed the second appeal and upheld the decree for eviction and mandatory injunction.

Date of Decision: 18 May 2026