Courts Must Pierce Veil Of Clever Drafting To Reject Suits Barred By Benami Law; 2016 Amendments Are Retrospective: Supreme Court

"Courts, in the discharge of their adjudicatory function, must therefore remain vigilant against attempts to secure judicial recognition of what the law expressly prohibits. The judicial process cannot be employed as an instrument to enforce rights founded upon transactions forbidden by statute," Supreme Court, in a significant ruling dated May 8, 2026, held that trial courts are duty-bound to look beyond "clever drafting" and "pierce the veil of form" to reject a plaint at the threshold if it is found to be a camouflaged attempt to enforce a prohibited benami transaction.

A bench of Justice J.B. Pardiwala and Justice R. Mahadevan observed that the 2016 amendments to the Prohibition of Benami Property Transactions Act, 1988, insofar as they are procedural and curative, operate retrospectively. The Court emphasized that substance must prevail over form and courts must not remain "silent spectators" when litigants attempt to circumvent statutory prohibitions.

The Respondent/Plaintiff filed a suit seeking a declaration of ownership over certain agricultural properties based on a registered Will allegedly executed by late K. Raghunath. The Appellants, who are the legal heirs of the deceased, contended that the properties were self-acquired and that the suit was a camouflaged attempt to enforce a benami transaction, as the Plaintiff admitted to funding the purchase in Raghunath's name to evade Land Reform laws. The Trial Court rejected the plaint under Order VII Rule 11 of the CPC, finding it barred by the Benami Act and the Hindu Succession Act, but the Karnataka High Court reversed this, prompting the present appeal.

The primary question before the court was whether the 2016 amendments to the Benami Act operate retrospectively and whether the suit was a camouflaged benami claim. The court was also called upon to determine if the disqualification of a murderer under Section 25 of the Hindu Succession Act applies to testamentary succession (Wills) and whether an employer-employee relationship constitutes a "fiduciary capacity" under the Benami Act.

Court On Duty To Screen Clever Drafting Under Order VII Rule 11 CPC

The Court observed that the power to reject a plaint under Order VII Rule 11 CPC is a "crucial filter" designed to terminate sham or frivolous litigation at the earliest stage. Relying on the precedent in T. Arivandandam v. T.V. Satyapal, the bench noted that if "clever drafting" creates an illusion of a cause of action, the court must nip it in the bud. A meaningful reading of the plaint must be undertaken to discern the true nature of the relief sought.

"The power to reject a plaint under this provision is not merely procedural but substantive, aimed at preventing abuse of the judicial process and ensuring that court time is not wasted on fictitious claims failing to disclose any cause of action to sustain the suit or barred by law."

Machinery Provisions Of 2016 Benami Amendments Are Retrospective

The Court conducted an exhaustive analysis of the 2016 Amendment to the Benami Act. It held that while penal provisions creating new offences can only be prospective, the machinery-oriented, procedural, and curative provisions—including those relating to attachment and confiscation—operate retrospectively. The bench noted that the earlier judgment in Ganpati Dealcom, which had held otherwise, was recalled by the Court in 2024, leaving the field open for this determination.

"The 2016 amendments, insofar as they are declaratory, procedural, curative and machinery-oriented, operate retrospectively / retroactively, while penal provisions creating new offences or enhancing punishment can operate only prospectively."

Employer-Employee Ties Do Not Constitute Fiduciary Capacity

The Respondent had argued that the transaction was saved by the "fiduciary capacity" exception under Section 2(9)(A)(ii) of the Act because the deceased was a trusted employee. The Court rejected this, stating that "fiduciary capacity" must receive a restricted construction. It held that an ordinary employer-employee relationship or commercial arrangements based on MOUs with fixed considerations do not fall within the legal definition of a fiduciary relationship.

"The limited fiduciary obligations that may arise in an employment relationship... cannot be expanded so as to validate or transform an otherwise prohibited property arrangement into a fiduciary holding exempt from the statute."

Murderer Disqualified From Inheriting Even Through A Will

Dealing with the allegations that the Plaintiff was involved in the murder of the testator, the Court addressed the bar under Section 25 of the Hindu Succession Act. It held that the disqualification of a murderer from inheriting the property of the person murdered applies to both intestate and testamentary succession. The bench invoked the legal maxim nullus commodum capere potest de injuria sua propria, meaning no man can take advantage of his own wrong.

"The bar under Section 25 applies equally to a person who seeks to inherit the estate of the deceased through testamentary succession... A person must not be permitted to profit from or take advantage of his own wrong."

Unlawful Objects Under Contract Act Render MOUs Void

The Court observed that the Plaintiff's own pleadings revealed that the MOUs were entered into to circumvent Sections 79A and 79B of the Karnataka Land Reforms Act. Since the object of the contract was to defeat a statutory mandate, the Court held it was hit by Section 23 of the Indian Contract Act and was therefore void. The bench emphasized that what cannot be done directly cannot be achieved indirectly through the medium of legal proceedings.

"A contract entered into for the purpose of circumventing the law is illegal and cannot be enforced or relied upon in a court of law."

Final Directions And Confiscation Of Property

The Supreme Court set aside the High Court's judgment and restored the Trial Court's order rejecting the plaint. However, the Court went further to hold that since the transaction was judicially determined to be benami, the properties were liable to confiscation under Section 27 of the Act. The Central Government was directed to appoint an Administrator to take over the suit properties within eight weeks.

The Supreme Court concluded that the suit was a "contemporary manifestation" of human ingenuity seeking to disguise an illegal transaction through the facade of a Will. By rejecting the plaint and ordering confiscation, the Court reaffirmed that benami transactions shall neither receive judicial indulgence nor escape statutory consequences. The ruling settles the law on the retrospective application of the Benami Act's machinery provisions and the broad application of the murderer's disqualification in inheritance law.

Date of Decision: May 8, 2026