The Delhi High Court has set aside a Single Judge’s order that summarily dismissed a property suit as barred by the Benami Transactions (Prohibition) Act, 1988. The Division Bench held that whether a transaction falls within the fiduciary relationship exception under Section 4(3)(b) of the Act is a mixed question of law and fact that requires adjudication based on evidence, not just pleadings.
Case Background
The appeal, Amar N Gugnani vs. Naresh Kumar Gugnani (Since Deceased Thr LRs) Sunita Gugnani & Ors., challenged the judgment dated July 30, 2015, passed by the learned Single Judge.
The Appellant, a resident of the USA, filed a suit (CS (OS) No. 478 of 2004) seeking declaration, eviction, and other reliefs regarding a property at 33, Uday Park, New Delhi. The Appellant contended that he had remitted substantial funds to his father, Late Shri Jai Gopal Gugnani, to purchase the plot and construct the house. A perpetual lease deed was executed in the father’s name in 1973.
The Appellant pleaded that his father held the property in a fiduciary capacity for the Appellant’s benefit. Following the father’s demise in 1992, the Appellant executed a Power of Attorney in favour of his younger brother (the Respondent) to manage the property. Disputes subsequently arose, leading to the suit.
The Respondent raised a preliminary objection that the suit was barred under the Benami Act. Issues were framed in 2008, with the onus placed on the Respondent to prove the bar. However, in 2015, the Single Judge dismissed the suit, exercising jurisdiction akin to Order VII Rule 11 of the Code of Civil Procedure (CPC), holding that the transaction was a benami transaction and did not fall within the exception of Section 4(3)(b).
Arguments
The Appellant argued that the Single Judge erred in dismissing the suit on the ground of maintainability after issues had been framed and the trial had commenced. Counsel for the Appellant submitted that the question of whether the transaction was barred or fell within the fiduciary exception involved “mixed questions of law and fact.” Reliance was placed on the Supreme Court judgment in Marcel Martins v. M. Printer, (2012) 5 SCC 342.
The Appellant contended that the specific pleading of a fiduciary relationship required the Court to allow evidence to be led. It was further argued that the Single Judge’s interpretation rendered Section 4(3)(b) otiose.
Court’s Observations and Analysis
The Division Bench, comprising Justice Vivek Chaudhary and Justice Renu Bhatnagar, observed that the Single Judge had treated the issue of maintainability as a “pure question of law” based on the Appellant’s admission that the property was purchased in the father’s name.
However, the Bench noted that the plaint contained specific pleadings regarding the existence of a fiduciary relationship. The Court held:
“The mere use of the expression ‘benami’ in the plaint could not, by itself, extinguish the statutory exception under Section 4(3)(b), especially when foundational facts constituting a fiduciary relationship were specifically pleaded.”
Referencing Marcel Martins, the Court reiterated that determining a fiduciary capacity requires consideration of the factual context. The Bench stated:
“The correctness or otherwise of the Appellant’s claim that his father held the suit property in a fiduciary capacity… can only be adjudicated upon a full appreciation of the pleadings and evidence.”
The Court distinguished the present case from J.M. Kohli vs. Madan Mohan Sahni & Anr., a case relied upon by the Single Judge. The Bench noted that in J.M. Kohli, the suit was rejected at the threshold based on vague pleadings. In contrast, the present suit had progressed to trial, issues were framed, and the onus was on the Respondent.
Decision
The High Court held that the Single Judge erred in “short-circuiting the adjudicatory process.” The Bench ruled that the applicability of the exception under Section 4(3)(b) is a mixed question of law and fact.
“The impugned dismissal, therefore, amounts to deciding a contested issue of fact prematurely and has resulted in denial of a fair opportunity to the Appellant to establish the pleaded fiduciary relationship by leading evidence.”
Consequently, the appeal was allowed, the impugned order dated July 30, 2015, was set aside, and the matter was remanded to the Single Judge with directions for the parties to appear on February 25, 2026.
Case Details:
- Case Title: Amar N Gugnani vs. Naresh Kumar Gugnani (Since Deceased Thr LRs) Sunita Gugnani & Ors.
- Case Number: RFA(OS) 89/2015
- Coram: Justice Vivek Chaudhary & Justice Renu Bhatnagar
